How to Start a Prepaid Debit Card Business

Prepaid debit cards, also called stored value cards, are a rapidly growing industry because many consumers have ceased to use their credit cards while trying to pay them off or simply want a way to budget their monthly purchases. Students who are too young to qualify for credit cards and immigrants who are not eligible for the banking services available to American citizens also find prepaid debit cards useful for making payments online. Many people find that these cards are less expensive to use than regular bank debit cards or credit cards, but that depends on the cards in question.

Suggestions

1. Decide who your target market will be. There are many kinds of cards available: general spending, payroll, reward, gift, incentive, travel, teen and other mass payment cards. Specifically, decide whether you want to distribute cards to individuals who will use them for their own spending purposes or as gift cards, or do you want to service companies that need to make large cash distributions to groups of people but do not want to go through the expense and work involved in issuing separate checks.
2. Research providers of stored value card services such as Palm Desert National Bank and the Primo Card Group, which are two large providers. Contact your bank to see if it also offers stored value cards for resale or distribution to businesses that need to issue such cards. Make sure you fully understand the details of costs and services since those details will directly impact your profit,
3. Write a business plan detailing your target customer and how you will market the cards to that customer. Conservatively project your sales, cost of sales, net revenues, administrative expenses and other financial considerations over at least three years. Your profit margin will be small, so you must know how many cards you will need to sell each month to cover your marketing expense.
4. Make use of the assistance you can get from your service provider. It is in their best interest to make sure you have all the tools to succeed as a reseller or distributor of their product; and if you do not get adequate help from them, it is a sign that you might want to consider working with a different company.
5. Contact your attorney for information on federal, state and local laws that may impact your business as well as liability concerns. Escheat laws differ from state to state, and these cards are also vulnerable to changes in the Patriot Act, the Bank Secrecy Act and anti-money laundering regulations.

Tips

• Buy a prepaid debit card issued by each of the providers you are considering using. Pay attention to their customer service and the ease of adding cash to your account. You will want to know how your customers are going to feel about their experiences with your card.
• Make sure to stay informed about any controversy connected with the fees charged by stored value cards. The financial crisis of 2008 created concern about the high costs of consumer financial services, and stored value cards have figured in media discussions as well as governmental scrutiny.

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