Prepaid cards are a small but growing segment of the card market. The
majority of prepaid cards in issue are closed-loop gift cards. Closed loop means the card can be used only at a specific retailer or chain of retailers.

These cards have largely replaced paper gift vouchers. Some prepaid cards are now scheme (Visa / MasterCard) badged and are referred to as open-loop, i.e. they can be used at multiple locations with both point-of-sale and ATM functionality. It is these cards that banks and building societies are now beginning to issue in some numbers as they offer an opportunity to extend their customer base whilst offering a new product to existing customers.

Key target areas are the unbanked who have no other access to card
payments, and teenagers where the advantage is that spending can have limits that there is no possibility of exceeding. Prepaid cards are attractive to businesses such as insurers who may seek to issue claimants with a prepaid card to cover claims to a specific retailer.

The travel sector provides a good opportunity as the cards can be used as an alternative to cash or travellers cheques and can be used for cross-border payments. For the potential prepaid cardholder, benefits include allowing purchases to be made over the internet and by telephone, whilst it can also be a less expensive way of conducting financial affairs, e.g. through avoiding cheque-cashing outlets, although it may be a more expensive alternative to cash. One area of growth is in retail shopping centres.

An example is the Trafford Centre in Manchester where a Visa Electron gift card programme is in operation. Key to the success of this product will be the convenience, ease of point-of-sale and ATM transactions, and the level of fees attached to the loading and use of the card.

The market can be expected to continue to evolve over the next year
as there are many prepaid cards coming to the market. In some cases
these are from issuers who are new to the market and this is leading to
considerable product innovation.