Let’s start out making one thing clear – prepaidcards are not debit cards, and they are not credit cards. Prepaidcards are their own category, and the industry needs to begin beingmuch clearer with the language it uses when talking to the press,the government, and each other.
Up to now, the prepaid industry has been struggling to educate theworld about what its cards do. This has led to sloppy languagebeing applied to the cards. While the word “prepaid” is oftenappended to “credit cards” and “debit cards” to describe theseprograms, it is still not uncommon to see prepaid cards referredsimply as “debit cards” especially in places like descriptions ofunemployment programs.
Here is the problem – language matters. As the journalist WalterLippman once wrote, “You have looked at the stars once and remarkedthat they are grand, and again only to say that the heavens areswell, why not look at the Wrigley chewing gum sign on Broadwaywhich is equally grand and swell. Without words to give precisionto ideas, the ideas themselves soon becomeindistinguishable.”
Now more than ever, the industry cannot afford for the ideas ofcredit, debit, and prepaid to become indistinguishable from oneanother.
Prepaid cards are not secured credit cards, but that is what theterm “prepaid credit card” might imply to a potential customer orregulator. Secured credit cards are credit cards that are backed bymoney on deposit in case payments are not made and are often soldas a gateway to repairing credit and building a borrowingrelationship. Prepaid cards draw down a balance and do not functionin the same way in terms of rebuilding credit or leading to alarger borrowing relationship. The industry does not want customersthinking that the initial deposit is always there and that they arepaying off a loan as they load funds. Also, the industry is facingscrutiny and potential sanction over the question of whetherprepaid cards help build credit.
Prepaid cards are not debit cards, and avoiding this term is evenmore important. Prepaid cards do not connect to an individualaccount. They draw from a pool of funds. This distinction iscritical when it comes to avoiding the interchange restrictions ofthe Durbin amendment. Interchange is a necessary source of revenuefor card programs. If prepaid cards become indistinguishable fromdebit cards, then they will lose the interchange funding they haveand may soon become impossible to offer.
The industry needs to watch its language and correct those who makemistakes in naming prepaid cards. It will take some time for thenew terms to take hold, but the effort will pay dividends in thelong run.
