How does Credit Card Issuer manage Prepaid Credit Card?

Difference between a Prepaid Credit Card and a Debit Card

A prepaid credit card is very similar to a debit card. In order to use it, one has to deposit cash with the credit card issuer first. Then the cardholder can use the prepaid credit card, up to the amount he has deposited in. All transactions incurred with the prepaid credit card, will be debited against the prepaid credit card account. You do not need a saving or current account with a bank in order to open a prepaid credit card account.

In the case of a debit card, one must have either a saving or current account with the bank. Whatever transactions incurred with the debit card, will be debited either to the saving or current account.

Usage

For every prepaid credit card, the card issuer will open an account for it. The prepaid credit cardholder will not be given any credit by the credit card issuer. In order to use the prepaid credit card to make purchases, the cardholder has to pre-deposit some money into the account first.

Some prepaid credit card needs a pin (personal identification number) to transact and some do not need. Such pin option is determined by the card issuers.

Advantages of a Pin Based Prepaid Credit Card:

1. More security.

2. Faster transaction processing time.

3. Cheaper cost as pin pad not required.

4. Wider merchant base.

Disadvantages of a Pin Based Prepaid Credit Card:

1. Cumbersome if you forgot your pin.

2. Higher cost as pin pads need to be provided to the merchants.

3. Slow down transaction processing time.

4. Limited merchant base.

Acceptance

A prepaid credit card is accepted at any merchant where a prepaid credit card acceptance decal is displayed. Usually most credit card merchants are also prepaid credit card merchants. For example, most MasterCard Credit Card Merchant are also MasterCard credit card merchants and the same apply to Visa.

Managing Credit Loss

For every card products, the card issuers need to implement tight security measures and controls to protect themselves from credit problems. Prepaid credit card is no exception to that.

In order to ensure the cardholders do not spend more than their deposits, the card issuers will set the account’s credit limit to zero. This means the cardholders can only spend up to the amount of deposit he or she has put in. Once the deposit is used up, no further transaction will be allowed. With such control in place, credit loss on prepaid credit card to the card issuer is either zero or minimal.

Managing unauthorized and fraud transactions

Fraud syndicates like to hit on any financial transaction that they have the opportunity to get away with. Prepaid credit card transaction is no exception that. Therefore, the card issuers need to implement checks and monitoring procedures to deter unauthorized and fraud transactions.

Some of the common criteria built inside a credit card authorization system are:

1. CVC check

2. Card expiry date check

3. Available balance check

4. High single transaction limit check

5. Transaction frequency check

The above check parameter is not exhaustive and not in any kind of sequence.

Once the transaction passes through all the security checks, it will be approved. If not, it will be declined.