A brief look into the history of prepaid cards

prelin —  May 9, 2013 — Leave a comment

As prepaid cards continue to grow we thought we’d take a quick look into the history of prepaid cards and their origin:

Gift cards made their first appearance in the 1970s, although they did not emerge as a widespread form of payment until recently. Then in the 1980s, single-purpose (also known as closed-loop) cards, whose acceptance is limited to specific merchant locations, were adopted by the U.S. telecom industry. The telecoms were then followed by the big retail chains in the early 1990s and closed-loop cards quickly became the plastic version of paper gift certificates.

The gift card market exploded and became what we know it as today. Every mall and most stores have some form of giftcard you can buy.

The other major type of prepaid — open-loop — owes its adoption in the U.S. to the 1996 federal welfare reform, which mandated that food stamp coupons should be replaced with electronic benefits transfer (EBT) cards. Of course, EBT cards needed to be accepted at multiple merchants and that gave rise to the open-loop (also known as multi-purpose) cards.

Then in the late 1990s payroll cards emerged as a convenient way for employers to pay their “unbanked” workers (defined as employees without a bank account). Finally, in 1999 open-loop prepaid gift cards, which at this time had been available in Europe for quite a few years, made their appearance in the U.S. Today, all major card associations (Visa and MasterCard) and companies (American Express and Discover) offer multi-purpose prepaid cards that can be used at any merchant that accepts payment cards bearing the brands’ logos.

This is the current state of prepaid cards that are generally able to be reload and work anywhere a credit or debit card is accepted.

The future is a prepaid card becoming a spending account where your salary gets deposited into the account. These are just a few of the reasons why a prepaid debit card is the best way to approach money management.


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