Prepaid cards as a payment solution for everyday expenses can be traced back to the 1970s, when several colleges began using “closed loop” payment systems on their campuses. Universities issued pay cards to students for meals, bookstore purchases and other campus-related expenses.

In the years since, prepaid cards have been universally embraced by merchants, transit systems, and of course, telecom providers. It was no surprise when the corporate world adopted the closed-loop approach for payroll, travel, and employee incentives. But when the federal government recognized the utility of prepaid for giving out social security and other benefit funds to the unbanked, it was the biggest coup of all.

According to the Mercator Advisory Group, the total prepaid market, both Open Loop and Closed Loop, continues to grow, but a large part of this growth is driven by the increased adoption of Open Loop (network branded) cards as a replacement for checks - both government to consumer and business to consumer payments. These include general purpose reloadable cards, consumer incentive cards, social security, unemployment and other government load cards, as well as corporate incentive cards.

Tim Sloane, CEO of Mercator, noted an increase in federal and state disbursements, including unemployment, food stamps, and Temporary Assistance to Needy Families (TANF), as a result of the current economy. Due to the ramp up of the Treasury’s Direct Express card program, Social Security showed an amazing gain of 11,000 percent.

The Direct Express card, which is more efficient and costs less than paper-based disbursement methods, gives millions of unbanked Americans the option of using a debit card for receiving Social Security and other federal benefit payments. The accounts are PIN-protected, FDIC-insured, and subject to federal consumer protection regulations.



On the Road with Pay Cards

Commercial prepaid cards, also known as pay cards, enable employees to purchase supplies and services. Both government and corporate employees use pay cards issued by purchasing or accounting departments to eliminate check-printing and distribution expenses, reduce bank fees and account-reconciliation costs, and shift escheatment liability to the financial institution or vendor that’s actually holding the funds. The approach also removes the problems associated with cash payouts.

Regulation E of the Electronic Fund Transfer Act — the law that governs electronic fund transfers at ATMs, points of sale, banks and any other financial service that electronically debits or credits a consumer’s account — was expanded in 2007 to include pay cards. Regulation E requires financial institutions to disclose the terms and conditions of an EFT (electronic fund transfer), provide receipts and periodic account statements and limit consumer liabilities for unauthorized transfers.

Both pay cards and branded gift cards make perfect sense for district managers, salespeople, and consultants while doing business on the road and up in the air. The employer gets the added benefit of curtailing per diem expenses.

“Companies are controlling expenses by providing pay cards with per diem expenses,” said consultant Lori Breitzke of E&S Consulting, LLC. “Pay cards reduce company liability and risk because it reduces the number of employees that need corporate credit cards. For employees, it means they don’t have to wait weeks to be reimbursed for expenses.”

Speaking of travel, what happened to Travelers Checks? ATM machines and debit cards have made those once indispensable checks practically obsolete. Besides bank debit cards, travel cards are being issued by Visa. American Express has dropped out of the travel card market and is sticking to credit cards. Visa TravelMoney comes with all kinds of benefits for travelers, such as safety, baggage insurance, and the ability to reload from anywhere.

For pay at the gas pump and convenience stores, Chevron and Texaco gift cards are a big hit with road warriors. At the request of managers, support staffers back at the office are known to purchase lots of these handy gift cards on auction sites.

“Prepaid cards are useful for institutions with lots of people in the field who need to be provided with per diem expense budgets,” noted Alan Mattei, managing director of Novantas. “For more extensive travel, a prepaid card does not offer the same flexibility as a credit card, especially when there are large unforeseen hotel and air expenses, but it does limit your business exposure.”

Pay cards can also be a convenient way of paying temporary workers. Many companies find that pay card systems help boost employee morale while cutting staff churn rates. And open-loop gift cards are used to reward employees for outstanding performance.

Teachers can do a better job now that they have pay cards, also known as supply shelf cards. They are able to purchase essential school supplies for creating bulletin boards and educational materials.



Prepaid Health Care

CVS now offers prepaid health cards from Blue Cross and Blue Shield of Florida. They can be found in CVS pharmacy departments in its nearly 700 stores in the state of Florida. The Gift of Health Care card, priced at $59, can be used to buy health insurance plans that the consumer selects during the card activation call. The choices are GoBlue and Blue Cross and Blue Shield of Florida’s most affordable guaranteed-issue preventive and routine health plans. Medical underwriting is required before coverage is issued.

The FamilyBlue Discount card, selling for $19, is good for discounts on dental and vision care, and prescriptions. It expires after three months. Winn-Dixie Stores Inc., a chain of supermarkets in Florida, also carries the Gift of Health Care and FamilyBlue Discount health cards. Maybe Congress can learn something from this healthcare program.

Prepaid cards are helping administrators of clinical trials research programs, which provides small stipends to participants. Contract research organizations (CROs) and medical research centers are providing patients with stipend cards to streamline clinical trials disbursements.

Payoneer Inc., the provider and designer of the patient stipend system, stated in a press release, “This is a relatively green field for prepaid solutions providers, but it is working.” So far, Payoneer Inc. is providing prepaid MasterCard cards to research participants in clinical trials at the Lang Center for Research & Education of New York Hospital Queens. The Lang Research Center previously used paper checks to pay their clinical trial patients.

Payoneer designed the patient stipend system exclusively for the clinical research market, where traditional payment methods like cash and paper checks were becoming an increasing burden on research administrators.

According to Yuval Tal, Payoneer CEO, “Our fully-hosed stipend system is cost-effective, easy to use and helps retail volunteers. It is a very attractive alternative to a conventional payment system.”



Expect More Prepaid Systems

Prepaid methods to fund corporate employees and recipients of federal and state benefits have shown to streamline administrative disbursement, making it easier for workers in a diverse range of jobs. Corporate pay cards and other prepaid solutions serve to limit company liability and risk and reduce the number of employees that need corporate credit cards. Government has been able to eliminate paper checks and the burden of mailing benefits to recipients that have no bank accounts.

For these reasons, prepaid cards will likely become increasingly important as a payment vehicle in government and corporate sectors, with new and more innovative applications emerging stronger every year.