||The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject. (December 2010)|
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 metaphorically 'physically' stored on the card, in the form of binary-coded data. 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.
Typical applications of stored-value cards include transit system farecards, telephone prepaid calling cards, Cafeterias, or for micropayments in shops or vending machines. Examples of country specific payment cards include Chipknip in the Netherlands, Geldkarte in Germany, Quick in Austria, Moneo in France, Proton in Belgium, FeliCa in Japan, EZ-Link and NETS (CashCard and FlashPay) in Singapore and Octopus card in Hong Kong. The German Geldkarte and the Austrian Quick card are also used to validate customer age at vending machines for cigarettes.
Typical applications of organization specific or industry specific prepaid card include payroll cards, rebate cards, gift cards, cafeteria cards and travel cards 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. Some examples of non-government related stored-value cards are Aramark GuestExpress, Compass Zipthru, and Freedompay FreetoGo.
Stored value cards can save organizations a considerable amount of money by allowing customers to add a large amount of funds at one time to the card and then paying a lower transaction fee for each use of the stored value card on smaller purchases.
Closed system prepaid cards
Closed system prepaid cards have emerged and replaced the traditional paper gift certificate, and are commonly known as merchant gift cards or store 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.
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.
There is growing concern that drug traffickers and other criminals worldwide are using stored-value cards to move the proceeds from drug transactions and other criminal activities across international borders. 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.
- Prepaid "credit" card
- Gift card
- Telephone card
- Electronic money
- SparkBase, a provider of closed-system pre-paid cards
- Decoupled debit card
- Dlabay, Les R.; Burrow, James L.; Brad, Brad (2009). Intro to Business. Mason, Ohio: South-Western Cengage Learning. p. 433. ISBN 978-0-538-44561-0.
- "Assessment: Prepaid Stored Value Cards". Johnstown, PA: National Drug Intelligence Center. October 31, 2006. Retrieved December 16, 2009.
- Reuters, March 26, 2010, Drugs, terrorism and shadow banking, http://blogs.reuters.com/great-debate/2010/03/26/drugs-terrorism-and-shadow-banking/
- Hughes, Sarah Jane, Stephen T. Middlebrook, and Broox W. Peterson. "Developments In The Law Concerning Stored Value and Other Prepaid Payment Products". Business Lawyer, November 2006.
- Rinearson, Judith and Chris Woods. "Beware Strangers Bearing Gift Cards". Business Law Today. Nov/Dec 2004, Vol. 14, Num. 2
- "A Conversation with Terry Goddard, Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2009/04/03/AR2009040301909.html