According to a USA Today article, “reloadable prepaid debit cards represent one of the fastest-growing segments of the financial services industry.” Adding further legitimacy to this relatively new class of financial products, in early 2011 the Treasury Department also jumped on the debit card bandwagon when they issued a press release introducing their pilot prepaid debit card program for “fast, safe, and convenient tax refunds”. Through this program, Treasuryprovided a number of low income refund recipients with a prepaid debit card which allowed them to utilize the direct deposit option for their tax refunds.
What is the appeal of prepaid debit cards? And what service do the provide? And how, as a business owner, are prepaid debit cards useful to you, if indeed they are?
First, what is the appeal of prepaid debit cards? These cards provide a way to limit and control spending while not requiring one to carry cash all the time. Have you seen those Visa commercials where everyone stops when the person pays with cash? Well these cards help ensure that that person is not you. Part of the appeal are the services they provide. They enable access to funds in much the same way as a traditional bank debit card affords access to one’s checking or savings account. They also typically allow holders and others to deposit funds online or at various points around a city or town. In addition, they track spending and usage much the same way bank accounts and credit cards do. Hence, prepaid debit cards appeal to those who don’t have checking or savings accounts and to those who want to monitor and manage another’s usage of the card, such as a parent with a student.
How are these debit cards useful to small business owners?
Many large corporations provide business credit cards, often American Express, to their employees for use with travel, meals and entertainment and small, company-oriented purchases. The issuer usually provides the corporate business card based on the company’s credit, although entities such as American Express report the card’s usage on the employee’s credit report. (In such cases American Express’ program provides extended payment terms to allow time for expense report submittal and reimbursement.) A Misuse of a corporate credit card can be grounds for dismissal.
Unfortunately, many small businesses do not have sufficient company credit to obtain company credit cards based on the company’s credit alone. Most banks and other issuers therefore require a personal guarantee by the owner. Consequently, these business owners are loathe to let the company credit card too far out of their sight. They don’t have the deep coffers, internal controls, and in-house personnel to properly monitor and manage a program that could cause such significant damage to their personal credit in the event of flagrant employee misuse.
What prepaid debit cards do is enable small business owners and management to provide certain employees with the monies necessary to fund their travel, meals and customer entertainment. It allows more businesses to pre-fund these employee expenses and decreases the employees’ usage of his or her own personal credit card for business expenses. Most prepaid debit cards, such as the Green Dot card, have online spending and balance monitoring and tracking functions which enable accounting or account payables departments to monitor the cards’ usage. With prepaid debit cards, the business owner’s exposure is limited to the amount placed on the card. The business owner can decide which employee gets what amount depending on how often the employee travels, entertains clients, or makes business purchases or how quickly the employee submits expense returns.