New Technologies Connected to Prepaid Cards

With the world moving at such a fast pace in terms of technology and consumer demand for instant gratification, prepaid cards are more popular than ever. Not only do prepaid cards offer a variety of convenient features, they are also able to be used at retailers all over the world. We’ll take a look at some of the most recent technological innovations connected to prepaid cards, and why consumers, retailers, and even government agencies welcome this technology.

Although EMV (short for Europay, MasterCard, Visa) chip technology has been mandated in European countries for almost two decades, the United States has just started coming around to using microchipped debit and credit cards on a large scale. The US set an October 2015 deadline in order to encourage card issuers to incorporate EMV chips into credit and debit cards, stating that card issuers risk being held liable for any fraud that occurs as a result of continued use of magnetic stripe cards.

- Image by Dennis S. Hurd | Flickr

The main purpose of EMV chips is to circumvent thieves who have long taken advantage of magnetic stripe technology. Security is increasingly important, especially following major breaches involving credit and debit cards at several national retailers. EMV chip technology is more secure than the traditional magnetic stripe because the chip transmits a unique code for each payment transaction as a form of authentication. Magnetic stripe cards essentially rely on the same technology as cassette tapes, and all the payment data is stored right on the card—making them an easy target for thieves. In fact, a device called a “skimmer” that reads magnetic stripe card data can be assembled or purchased for as little as $20. The data on microchipped cards is much harder to hack.

Although the industry focused first on rolling out EMV technology in credit cards, prepaid cards are now beginning to be issued with EMV chips embedded for added consumer peace of mind and the same level of protection.

Real time payments are growing in popularity, with many banks and app developers coming up with ways to transfer money almost instantly. Traditionally, banks have processed transactions in batches, and the process can take days, depending on the type of payment and other factors. Real-time payments represent a fundamental change in the way banks operate, requiring them to immediately authorize a payment upon receiving the request, make the funds available, settle any obligations with other financial institutions, and then issue a notification to the customer. Prepaid cards have historically missed out on real-time payment technology because, until recently, many prepaid cards weren’t eligible for use with real-time payment systems.

Consumers largely favor real-time payment technology, and retailers and financial institutions are on board as well. Specifically, consumers enjoy the speed and convenience of being able to pay retailers, small businesses, or even other individuals immediately, and seeing the funds withdrawn from their account instantly, instead of having to wait a few days for the transaction to clear. This can make financial planning easier. Retailers—especially online merchants—prefer real-time payments because they are able to process orders and ship products faster when they receive payment instantly.

Prepaid card readers are another technological advance that has come up in recent years. This technology is primarily used by law enforcement officials, who have noticed that our increasingly cashless society has brought about a change in the nature of fraud and theft.

Officers are encountering criminals who have several potentially fraudulent cards in their possession—from gift cards to debit cards and even hotel key cards. Criminals use these cards to illegally generate prepaid cards with stolen information. Because many of these cards continue to utilize magnetic stripe technology, they are prime targets for this kind of fraud.

The Department of Homeland Security Science and Technology Directorate’s Electronic Recovery and Access to Data (ERAD) Prepaid Card Reader has been successfully used and is swiftly becoming essential during search and seizure operations by law enforcement. The Prepaid Card Reader is a compact device that utilizes wireless connectivity and gives law enforcement officers the ability to check card balances and other information when they find potentially fraudulent cards during raids or arrests. The Prepaid Card Reader allows officers to verify the funds on each card, as well as place holds on them until the investigation is complete.

One of the recent success stories with the ERAD device involved the seizure of nearly 1,000 cards from a suspected drug dealer. Law enforcement was able to use the ERAD device to identify about $50,000 in illegal funds that had been loaded onto the cards. To date, the Prepaid Card Reader has assisted in the seizure of about $1 million in funds tied to criminal acts.

As technology continues to have a significant impact on society, the way we make payments and handle money continues to change. Although some of this technology was slow to reach the prepaid card market initially, with consumer, retailer, and bank demand, we are sure to see even more exciting technology in the world of prepaid cards.