Stored-value card
Encyclopedia
A stored-value card refers to monetary value on a card not in an externally recorded account and differs from prepaid cards where money is on deposit with the issuer
similar to a debit card
. One major difference between stored value cards and prepaid debit cards is that prepaid debit cards are usually issued in the name of individual account holders, while stored value cards are usually anonymous.
The term stored-value card means the funds and or data are physically stored on the card. With prepaid cards the data is maintained on computers affiliated with the card issuer. The value associated with the card can be accessed using a magnetic
stripe embedded in the card, on which the card number is encoded; using radio-frequency identification (RFID); or by entering a code number, printed on the card, into a telephone
or other numeric keypad
.
or for micropayment
s in shops or vending machines. Examples of country specific payment cards include Chipknip in the Netherlands, Geldkarte
in Germany, Mon€o
in France, Proton
in Belgium, FeliCa
in Japan, EZ-Link
and NETS in Singapore and Octopus card
in Hong Kong. The German Geldkarte is also used to validate customer age at vending machine
s for cigarettes.
Typical applications of organisation specific or industry specific prepaid card include payroll cards, rebate card
s, gift cards, and travel card
s and U.S. based health schemes such as HSA
cards. The U.S. Department of the Treasury manages three stored-value card programs (EZpay
, EagleCash, and Navy Cash) which are used by the U.S. military as electronic alternatives to cash in areas characterized by difficult access and limited banking / telecommunications infrastructure.
Closed system prepaid cards have emerged and replaced the traditional gift certificate and are commonly known as merchant gift cards. "Closed system" means the cards are only accepted at a single merchant. Purchasers buy a card for a fixed amount and can only use the card at the merchant that issues the card. Generally, few if any laws govern these types of cards. Card issuers or sellers are not required to obtain a license. Closed system prepaid cards are not subject to the USA PATRIOT Act
, as they generally cannot identify a customer. As debts owed to consumers who purchased the card, these purchases remain on the books of a merchant as a liability rather than an asset. Consequently, gift certificates and merchant gift cards have fallen under state escheat
or abandoned property laws (APL). However, the emergence of closed system prepaid cards has blurred the applicability of APL. North Carolina and Illinois have excluded these types of cards from APL provided the card has no expiration date or a service fee. Maine and Virginia require the issuer to pay the state when the cards are abandoned. In Connecticut an issuer is required to identify the residence of the gift card owner. Since most merchant gift cards are anonymous, the residence of the card's owner is deemed to be the state's treasurer's office.
Presently, no law exists that requires an issuer to provide refunds for lost or stolen cards. Whether a refund is possible is specified in an issuer's cardholder agreement. In addition, most closed system cards cannot be redeemed for cash. When a cardholder redeems all but an insignificant portion of the card on merchandise, that amount is generally lost and is absorbed by the issuer.
Such cards are increasingly becoming a way for Mexican drug cartels to smuggle money across the border without repercussions.
Cardholders generally suffer from the same redressability problems that closed system card holders suffer. It is unclear whether or not Chapters 7 and 11 of the Bankruptcy code are applicable to these types of cards.
, Visa Electron
, MasterCard
, or Maestro
and can, unlike gift cards, be used anywhere debit cards with the same logo may be used. They are very similar to a debit card except that they don't require a checking account. They have been heavily marketed in the United States
as a safe and responsible means for parents to give their children some spending power which is why they sometimes are referred to as teen cards. Whilst in the United Kingdom, they have been heavily marketed as a convenience tool and budgeting aid for global usage. Market participants such as Kalixa, Caxton FX
, Travelex and My Travel have used these cards to stimulate the adoption and appeal of open system prepaid cards in the UK. These cards have seen a 10 – 15% growth since they appeared in the UK market in 2005. These cards are also sometimes referred to as "open loop" cards.
These cards have been marketed to consumers with poor credit
, who are unable to qualify for the line of credit that backs a mainstream credit card. The fees associated with these cards are often very high. These have been criticized as unjustified, because the issuer is not taking any credit risk
. The Financial Consumer Agency of Canada
describes prepaid credit cards as "an expensive way to spend your own money"
A variation on this are the PaidByCash virtual cards in the United States
and the 3V cards issued in the Republic of Ireland
. These consist only of a card number plus expiry date and verification number
, so can only be used for customer not present transactions.
The Tobacco Card has undergone testing and is scheduled for nationwide introduction in Japan
in 2008. It will contain an IC with information about the cardholder's age, and will be required for purchasing cigarettes from vending machines. It will have stored-value capability.
Generally these cards are afforded similar characteristics as "open system prepaid cards". Similar to credit cards, these cards may carry an expiration date, an account number, and a verification number. They also may carry with them service fees and other fees associated with use, or non use of the card. The money on the card can be redeemed for goods only, and is not redeemable for cash. These cards are generally issued by a "money services business
"(MSB) or an FDIC banking institution. The type of issuer depends on the law governing them. MSB's are only required to obtain a money transmitter license if they sell more than $1,000 per person per day. Cards issued by an MSB generally are governed by the laws governing "closed system cards" and "semi-closed system laws". Cards issued by an FDIC bank are covered under the Federal Reserve Act and afford cardholders much more protection and opportunity to assert claims. The cardholder should be aware of the network's agreement and rules and regulations set forth by these networks.
Another example of open system prepaid cards is the Payroll card. Payroll cards are used by employers to pay employees. The employee is issued a card that permits access to an account established by the employer. At the end of each pay period, the employee's ability to draw money from that account is increased by the amount of his or her wages. The card may be used at an Automated Teller Machine
(ATM) to obtain cash, and may be used at a store to pay for purchases.
The payroll card is particularly useful for employees who do not have a regular checking or savings account
at a financial institution because they can access their wages conveniently. Also, if there is no charge for using an ATM, they avoid fees charged for cashing checks. The advantage to the employer is low cost of paying wages and efficiency.
These cards are subject to Chapters 7 and 11 of the Bankruptcy Code
, as well as the Electronic Funds Transfer Act
(Regulation E). They are also subject to the Federal Deposit Insurance Reform Act
.
and other criminals worldwide are using stored-value cards to move the proceeds from drug transactions and other criminal activities across international border
s. In the United States
, it is legal for anyone to enter or leave the country with money that is stored on these cards, and (unlike cash in high amounts) does not have to be reported to customs
or another government entity. Some members of the U.S. Congress
are considering creating laws that would require travelers crossing entering or leaving the country to report these cards.
The Financial Crimes Enforcement Network
of the U.S. Department of the Treasury
, has published a notice of proposed rulemaking on stored-value cards in the June 28, 2010 edition of the Federal Register
. The proposed rules would require sellers of prepaid cards to register with the government and keep records on transactions and customers.
Issuer
Issuer is a legal entity that develops, registers and sells securities for the purpose of financing its operations.Issuers may be domestic or foreign governments, corporations or investment trusts...
similar to a debit card
Debit card
A debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution...
. One major difference between stored value cards and prepaid debit cards is that prepaid debit cards are usually issued in the name of individual account holders, while stored value cards are usually anonymous.
The term stored-value card means the funds and or data are physically stored on the card. With prepaid cards the data is maintained on computers affiliated with the card issuer. The value associated with the card can be accessed using a magnetic
Magnetism
Magnetism is a property of materials that respond at an atomic or subatomic level to an applied magnetic field. Ferromagnetism is the strongest and most familiar type of magnetism. It is responsible for the behavior of permanent magnets, which produce their own persistent magnetic fields, as well...
stripe embedded in the card, on which the card number is encoded; using radio-frequency identification (RFID); or by entering a code number, printed on the card, into a telephone
Telephone
The telephone , colloquially referred to as a phone, is a telecommunications device that transmits and receives sounds, usually the human voice. Telephones are a point-to-point communication system whose most basic function is to allow two people separated by large distances to talk to each other...
or other numeric keypad
Keypad
A keypad is a set of buttons arranged in a block or "pad" which usually bear digits, symbols and usually a complete set of alphabetical letters. If it mostly contains numbers then it can also be called a numeric keypad...
.
Typical applications
Typical applications of stored-value cards include transit system farecards, telephone prepaid calling cardsTelephone card
A telephone card, calling card or phone card for short, is a small plastic card, sized and shaped like a credit card, used to pay for telephone services. It is not necessary to have the physical card except with a stored-value system; knowledge of the access telephone number to dial and the PIN is...
or for micropayment
Micropayment
A micropayment is a financial transaction involving a very small sum of money and usually one that occurs online. PayPal defines a micropayment as a transaction of less than 12 USD while Visa prefers transactions under 20 Australian dollars, and though micropayments were originally envisioned to...
s in shops or vending machines. Examples of country specific payment cards include Chipknip in the Netherlands, Geldkarte
Geldkarte
Geldkarte is a Stored-value card or electronic cash system used in Germany. It operates as an offline smart card for small payment at things like vending machines and to pay for public transport or parking tickets. The card is pre-paid and funds are loaded onto the card using ATMs or dedicated...
in Germany, Mon€o
Mon€o
Moneo, sometimes branded as mon€o, is an electronic purse system available on French bank cards to allow small purchases to be made without cash....
in France, Proton
Proton (bank card)
Proton is an electronic purse application for debit cards in Belgium. The system was introduced in February 1995 with the goal to replace cash primarily for small transactions around the 15 EUR...
in Belgium, FeliCa
FeliCa
FeliCa is a contactless RFID smart card system from Sony in Japan, primarily used in electronic money cards. The name stands for Felicity Card...
in Japan, EZ-Link
EZ-Link
The EZ-Link card is a contactless smart card based on the Sony FeliCa smartcard technology and used for the payment of public transportation fares in Singapore, with limited use in the small payments retail sector...
and NETS in Singapore and Octopus card
Octopus card
The Octopus card is a rechargeable contactless stored value smart card used to transfer electronic payments in online or offline systems in Hong Kong...
in Hong Kong. The German Geldkarte is also used to validate customer age at vending machine
Vending machine
A vending machine is a machine which dispenses items such as snacks, beverages, alcohol, cigarettes, lottery tickets, consumer products and even gold and gems to customers automatically, after the customer inserts currency or credit into the machine....
s for cigarettes.
Typical applications of organisation specific or industry specific prepaid card include payroll cards, rebate card
Rebate card
A rebate card is a debit card that provides funds promised by a business as a rebate. They are often offered to those who make a specific purchase, or for loyalty to a company by accumulating a certain amount of money or number of points worth of purchases from a particular company.While some...
s, gift cards, and travel card
Travel card
A travel card is a ticket usable on more than one journey, route or mode of public transport within a specific area using bulk or discounted payment; some systems only cover travel by disabled or elderly people...
s and U.S. based health schemes such as HSA
Health Reimbursement Account
Health Reimbursement Accounts or Health Reimbursement Arrangements are Internal Revenue Service -sanctioned programs that allow an employer to set aside funds to reimburse medical expenses paid by participating employees...
cards. The U.S. Department of the Treasury manages three stored-value card programs (EZpay
Eagle Cash
EagleCash and EZpay are cash management applications that use stored-value card technology to process financial transactions in "closed-loop" operating environments. The programs are sponsored by the US Department of the Treasury for the US Military...
, EagleCash, and Navy Cash) which are used by the U.S. military as electronic alternatives to cash in areas characterized by difficult access and limited banking / telecommunications infrastructure.
Closed system prepaid cards
USA PATRIOT Act
The USA PATRIOT Act is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001...
, as they generally cannot identify a customer. As debts owed to consumers who purchased the card, these purchases remain on the books of a merchant as a liability rather than an asset. Consequently, gift certificates and merchant gift cards have fallen under state escheat
Escheat
Escheat is a common law doctrine which transfers the property of a person who dies without heirs to the crown or state. It serves to ensure that property is not left in limbo without recognised ownership...
or abandoned property laws (APL). However, the emergence of closed system prepaid cards has blurred the applicability of APL. North Carolina and Illinois have excluded these types of cards from APL provided the card has no expiration date or a service fee. Maine and Virginia require the issuer to pay the state when the cards are abandoned. In Connecticut an issuer is required to identify the residence of the gift card owner. Since most merchant gift cards are anonymous, the residence of the card's owner is deemed to be the state's treasurer's office.
Presently, no law exists that requires an issuer to provide refunds for lost or stolen cards. Whether a refund is possible is specified in an issuer's cardholder agreement. In addition, most closed system cards cannot be redeemed for cash. When a cardholder redeems all but an insignificant portion of the card on merchandise, that amount is generally lost and is absorbed by the issuer.
Such cards are increasingly becoming a way for Mexican drug cartels to smuggle money across the border without repercussions.
Semi-closed system prepaid cards
Semi-closed system prepaid cards are similar to closed system prepaid cards. However, cardholders are permitted to redeem the cards at multiple merchants within a geographic area. These types of cards are issued by a third party, rather than the retailer who accepts the card. Examples include university cards and mall gift cards. The laws governing these types of cards are unsettled. Depending on the state, the issuer may or may not be required to have a money transmitter license or other similar license. In addition to the District of Columbia, the states that require a license include Connecticut, Florida, Illinois, Iowa, Louisiana, Maryland, Minnesota, Mississippi, North Carolina, Oregon, Texas, Vermont, Virginia, West Virginia, Washington, and Wyoming. Note, these states explicitly require licensing for card issuers. Other states may have more subtle licensing laws. Under 18 USC section 1960, it is a crime for an issuer to conduct a money transmitting business without a license.Cardholders generally suffer from the same redressability problems that closed system card holders suffer. It is unclear whether or not Chapters 7 and 11 of the Bankruptcy code are applicable to these types of cards.
Open system prepaid cards
Open System Prepaid Cards or network branded prepaid cards are not credit cards, although they are sometimes marketed as "prepaid credit cards". No credit is offered by the card issuer and the cardholder spends money which has been prepaid to a card. Therefore, these cards are also marketed as "prepaid debit cards". The value is not physically stored on the card instead, the card number uniquely identifies a record in a central database, where the balance is recorded. These cards are similar to closed system prepaid cards, but are endorsed by a retail electronic payments network such as VisaVISA (credit card)
Visa Inc. is an American multinational financial services corporation headquartered on 595 Market Street, Financial District in San Francisco, California, United States, although much of the company's staff is based in Foster City, California. It facilitates electronic funds transfers throughout...
, Visa Electron
Visa Electron
Visa Electron is a debit card available across most of the world, with the exception of Canada, Australia, Ireland and the United States. The card was introduced by VISA in the 1980s and is a sister card to the Visa Debit card...
, MasterCard
MasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
, or Maestro
Maestro (debit card)
Maestro is a multi-national debit card service owned by MasterCard, and was founded in 1990. Maestro cards are obtained from associate banks and can be linked to the card holder's current account, or they can be prepaid cards...
and can, unlike gift cards, be used anywhere debit cards with the same logo may be used. They are very similar to a debit card except that they don't require a checking account. They have been heavily marketed in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
as a safe and responsible means for parents to give their children some spending power which is why they sometimes are referred to as teen cards. Whilst in the United Kingdom, they have been heavily marketed as a convenience tool and budgeting aid for global usage. Market participants such as Kalixa, Caxton FX
Caxton FX
Caxton FX is a privately owned foreign exchange and international payments provider based in the City of London, England. Caxton FX is a money service business registered by HM Revenue and Customs and regulated by the Financial Services Authority....
, Travelex and My Travel have used these cards to stimulate the adoption and appeal of open system prepaid cards in the UK. These cards have seen a 10 – 15% growth since they appeared in the UK market in 2005. These cards are also sometimes referred to as "open loop" cards.
These cards have been marketed to consumers with poor credit
Credit history
Credit history or credit report is, in many countries, a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy...
, who are unable to qualify for the line of credit that backs a mainstream credit card. The fees associated with these cards are often very high. These have been criticized as unjustified, because the issuer is not taking any credit risk
Credit risk
Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Other terms for credit risk are default risk and counterparty risk....
. The Financial Consumer Agency of Canada
Financial Consumer Agency of Canada
The Financial Consumer Agency of Canada is an independent government agency of the Government of Canada. FCAC provides consumer information and oversees financial institutions to ensure that they comply with federal consumer protection measures. Created in 2001, the Agency investigates cases of...
describes prepaid credit cards as "an expensive way to spend your own money"
A variation on this are the PaidByCash virtual cards in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and the 3V cards issued in the Republic of Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
. These consist only of a card number plus expiry date and verification number
CVV
CVV may refer to:* Card Verification Value, also known as Card security code, a security feature for credit cards* Carl Van Vechten , Harlem Renaissance photographer and portrait artist* Citrus variegation virus, a disease affecting citrus trees....
, so can only be used for customer not present transactions.
The Tobacco Card has undergone testing and is scheduled for nationwide introduction in Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
in 2008. It will contain an IC with information about the cardholder's age, and will be required for purchasing cigarettes from vending machines. It will have stored-value capability.
Generally these cards are afforded similar characteristics as "open system prepaid cards". Similar to credit cards, these cards may carry an expiration date, an account number, and a verification number. They also may carry with them service fees and other fees associated with use, or non use of the card. The money on the card can be redeemed for goods only, and is not redeemable for cash. These cards are generally issued by a "money services business
Money services business
A Money services business is a legal term used by financial regulators to describe businesses that transmit or convert money. The definition was created to encompass more than just Banks which normally provide these services to include non-bank financial institutions.An MSB has specific meanings...
"(MSB) or an FDIC banking institution. The type of issuer depends on the law governing them. MSB's are only required to obtain a money transmitter license if they sell more than $1,000 per person per day. Cards issued by an MSB generally are governed by the laws governing "closed system cards" and "semi-closed system laws". Cards issued by an FDIC bank are covered under the Federal Reserve Act and afford cardholders much more protection and opportunity to assert claims. The cardholder should be aware of the network's agreement and rules and regulations set forth by these networks.
Another example of open system prepaid cards is the Payroll card. Payroll cards are used by employers to pay employees. The employee is issued a card that permits access to an account established by the employer. At the end of each pay period, the employee's ability to draw money from that account is increased by the amount of his or her wages. The card may be used at an Automated Teller Machine
Automated teller machine
An automated teller machine or automatic teller machine, also known as a Cashpoint , cash machine or sometimes a hole in the wall in British English, is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public...
(ATM) to obtain cash, and may be used at a store to pay for purchases.
The payroll card is particularly useful for employees who do not have a regular checking or savings account
Savings account
Savings accounts are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money . These accounts let customers set aside a portion of their liquid assets while earning a monetary return...
at a financial institution because they can access their wages conveniently. Also, if there is no charge for using an ATM, they avoid fees charged for cashing checks. The advantage to the employer is low cost of paying wages and efficiency.
These cards are subject to Chapters 7 and 11 of the Bankruptcy Code
Bankruptcy Code
Bankruptcy Code may refer to:*Bankruptcy in Canada*Bankruptcy in the United States or Title 11 of the United States Code *Bankruptcy in China*Bankruptcy in the United Kingdom...
, as well as the Electronic Funds Transfer Act
Electronic Funds Transfer Act
The Electronic Fund Transfer Act was passed by the U.S. Congress in 1978 and signed by President Jimmy Carter, to establish the rights and liabilities of consumers as well as the responsibilities of all participants in electronic funds transfer activities....
(Regulation E). They are also subject to the Federal Deposit Insurance Reform Act
Federal Deposit Insurance Reform Act
The Federal Deposit Insurance Reform Act of 2005 , is an act of the United States Congress that regulates banks...
.
Money laundering
There is growing concern that drug traffickersIllegal drug trade
The illegal drug trade is a global black market, dedicated to cultivation, manufacture, distribution and sale of those substances which are subject to drug prohibition laws. Most jurisdictions prohibit trade, except under license, of many types of drugs by drug prohibition laws.A UN report said the...
and other criminals worldwide are using stored-value cards to move the proceeds from drug transactions and other criminal activities across international border
Border
Borders define geographic boundaries of political entities or legal jurisdictions, such as governments, sovereign states, federated states and other subnational entities. Some borders—such as a state's internal administrative borders, or inter-state borders within the Schengen Area—are open and...
s. In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, it is legal for anyone to enter or leave the country with money that is stored on these cards, and (unlike cash in high amounts) does not have to be reported to customs
Customs
Customs is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
or another government entity. Some members of the U.S. Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
are considering creating laws that would require travelers crossing entering or leaving the country to report these cards.
The Financial Crimes Enforcement Network
Financial Crimes Enforcement Network
The Financial Crimes Enforcement Network is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat money laundering, terrorist financiers, and other financial crimes.As reflected in its name, the Financial...
of the U.S. Department of the Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
, has published a notice of proposed rulemaking on stored-value cards in the June 28, 2010 edition of the Federal Register
Federal Register
The Federal Register , abbreviated FR, or sometimes Fed. Reg.) is the official journal of the federal government of the United States that contains most routine publications and public notices of government agencies...
. The proposed rules would require sellers of prepaid cards to register with the government and keep records on transactions and customers.
See also
- ScripScripScrip is an American term for any substitute for currency which is not legal tender and is often a form of credit. Scrips were created as company payment of employees and also as a means of payment in times where regular money is unavailable, such as remote coal towns, military bases, ships on long...
- e-goldE-golde-gold is a digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd., and allowed the instant transfer of gold ownership between users until 2009 when transfers were suspended due to legal issues. e-gold Ltd...
- Gift cardGift cardA gift card is a restricted monetary equivalent or scrip that is issued byretailers or banks to be used as an alternative to a non-monetary gift....
- Telephone cardTelephone cardA telephone card, calling card or phone card for short, is a small plastic card, sized and shaped like a credit card, used to pay for telephone services. It is not necessary to have the physical card except with a stored-value system; knowledge of the access telephone number to dial and the PIN is...
- Debit cardDebit cardA debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution...
- Electronic moneyElectronic moneyElectronic money is money or scrip that is only exchanged electronically. Typically, this involves the use of computer networks, the internet and digital stored value systems...
- SparkBaseSparkBaseSparkBase, LLC is a stored-value and gift card transaction processor located in Cleveland, Ohio, USA. It provides private-label, stored-value, specialty gift cards, customer loyalty, and community rewards programs to Independent Sales Organizations...
, a provider of closed-system pre-paid cards - PayoneerPayoneerPayoneer is an Internet-based financial services business that allows users to transfer money and receive payments through re-loadable prepaid MasterCard debit cards...