Open-loop prepaid cards have become a mainstream payment instrument for U.S. consumers. According to Forbes Magazine, Americans are expected to use these cards to make more than $200 billion dollars’ worth of retail purchases in 2014. At the same time, over the last several years, prepaid cards have become valuable tools for small business owners and their employees who may have difficulty obtaining a credit card or line of credit.
In a 2012 study analyzing trends related to prepaid card use, the Federal Reserve Bank of Philadelphia reported that businesses and governments were increasingly viewing these payment options as less expensive alternatives to payroll and benefit checks. Since then, a growing number of small businesses have incorporated prepaid cards into their in-house financial systems, and statistics indicate that this trend is only in its infancy.
Why the Attraction?
From a business owner’s perspective, prepaid business cards offer some very real benefits, mostly centered on control and convenience. That said, these cards can also save money by reducing expenses related to administrative duties. From a practical point of view, prepaid cards make employee financing easier and more efficient by allowing business owners to:
- Lower administrative costs by replacing cash and check transactions with electronic payments
- Enforce spending policies
- Attain better control over funds through spending limits
- Limit employee access to certain merchants through category code blocking
- Avoid overdraft fees and interest charges associated with traditional employee credit cards
For these reasons and others, prepaid cards are becoming more alluring to small business owners who want to reduce cost, risk, and frustration by streamlining employee financing. In addition, prepaid cards offer benefits to employees themselves by providing the following user-friendly perks:
- Keep track of spending with detailed purchase statements
- Worldwide ATM and POS acceptance
- More convenient and safer than cash or traveler’s checks
- Can be used online
- Able to spend company money instead of having to front their own cash for company-related expenses
In addition to these benefits, most providers are making it simple for companies to attain and manage prepaid card accounts, thanks to specialized programs tailored to small businesses. Usually, providers will enroll employees, distribute cards, issue spending statements and provide ongoing support. What’s more, they allow business owners to manage everything through a consolidated online account. So, if a company vehicle breaks down on the side of the road or suffers some other type of emergency, the business owner or administrative designee can log into the master account and add funds to the employee card within seconds.
Instant online management also makes it easy to move money. For example, say you’ve allotted a certain sum onto an employee’s card to cover expenses related to a business trip. If the worker ended up using far less than you’d anticipated, you can log into the account and move the money off the card and onto that of another employee or back into the main account, where none of your employees will be able to access it.
When used responsibly, prepaid cards allow companies to control and monitor in-house spending, while trimming the fat associated with administrative overhead. As a result, these payment tools have found a long-term place in the small business world, where increased efficiency and lower overhead costs can pave the way toward fatter bottom lines.