How the Prepaid Industry Works

There is enough confusion out there about how the prepaid debit card industry works, that it warrants a brief explanation. Now, keep in mind this is a very simplistic explanation of the industry’s structure, but for all intents and purposes, it should provide some insight.

At the top of the food chain, are the banks that issue the cards. Now, the term “banks” is used for simplicity. There are a few layers involved in the industry, and the banks who issue the cards are entities that you probably haven’t heard of as they more than likely don’t have brick and mortar branches where people go to deposit money. Deposited funds (online or through a retail merchant such as Western Union) will run through these companies much like a checking account. Visa, MasterCard, Discover and American Express are networks through which the cards are used. The networks provide a transaction service to the banks when your card is swiped. They typically charge the merchant and/or the bank a fee for each swipe. There are also program managers (also known as ISO’s – Independent Sales Organizations) in between all of this that create and run the marketing, advertising and sometimes, processing of the prepaid cards. If you have a question regarding your account, typically the program manager’s company fields the call.

In a nutshell, that is how the prepaid industry is structured. Sometimes, lines between banks and program managers become blurry or even non-existent. Nevertheless, it is a system that continues to work well for many and continues to improve as it evolves.

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