Prepaid card

• What they are
• Interested parties
• Strengths and drawbacks
• Expenses
• Underlying rules
• Pitfalls

What they are

You can use a prepaid card to buy goods and services or to withdraw cash from an automated teller machine (ATM) up to the amount prepaid to the card issuer. It is like having an electronic wallet from which you deduct the amounts spent every time you use it. In some cases, prepaid cards can be reloaded without needing to have a current account.

If the card is connected to an international circuit, you can also withdraw cash and pay abroad. Like other payment cards, prepaid cards are made of plastic and contain a microchip and magnetic strip.

You can use your prepaid card to shop in person or online. When prepaid cards are used to make payments over the Internet, any losses due to fraud are usually limited to the card balance.

One special type of prepaid card, also called an account card, has an IBAN associated with it. Having an IBAN means that the card can be used to send and receive credit transfers or to receive direct debits, in some cases even outside of Italy.

You can also have your wages or pension benefits credited to an account card, just as if it were a current account. Likewise, you can use it to automatically pay your utility bills as well as to shop online and withdraw money from a bank or an ATM.

There are also other types of prepaid cards, usually with more restrictions on use, such as one-time use cards and closed-system cards.

One-time use cards (such as phone cards) can only be used with the issuing merchant. With closed-system cards you are restricted to purchasing the issuer's goods and services (highway tolls and telephone services), to using them within a defined network of merchants or to buying a limited range of goods and services. Because of this feature, these cards can be issued by non-supervised entities.

One-time use and close-system cards are not considered electronic money and are not subject to the legislative framework established by the revised Payment Services Directive (PSD2).

Interested parties

Prepaid cards are very handy for travellers and for young people since, if necessary, they can be reloaded by another person somewhere else. If the card is lost or stolen, only the remaining balance is at risk if there is any unauthorized use.

Strengths and drawbacks

If you have a prepaid card, you can carry little or no cash and still have a certain amount of money on you to spend at any time.

It can be reloaded from anywhere by anyone and only the amount loaded on the card is at risk in the event of unauthorized use.

It is important to never leave your card unattended and to always take care to not keep your PIN with your card to avoid it being used without your permission.

Expenses

The main costs of a prepaid card are:

• an annual fee
• a card purchase fee
• ATM withdrawal and reloading fees
• foreign currency transaction fees.

Prepaid cards with an IBAN usually have much lower monthly fees than traditional current accounts. Many banks do not even charge a fee for issuing the card. In some cases, the monthly fee (if any) is waived if you have your wages or pension benefits directly credited to the card.

Finally, there is usually no stamp duty, which you have to pay on any normal current account.

Underlying rules

Once you receive your card:

• store your personal identification number (PIN) separately from where you usually keep your prepaid card;
• when you make a purchase, check that the amount stated on the receipt that the vendor gives you is correct;
• in the case of theft or unauthorized use of your card, you should immediately contact your card issuer, usually through a toll-free or dedicated telephone number, to 'freeze' the card and you should file a report with the police or Carabinieri.

Prepaid cards bearing the user's name have higher balance limits that vary from issuer to issuer and can be reloaded multiple times.

Pitfalls

It has been shown that when we pay with cards, not only do we spend more but we also pay more for the same good or service than when we use cash. This is because we don't have to take cash out of our pockets. This is known as mental accounting, which refers to our tendency to sort cash into mental accounts based on its source.

Mental accounting can be useful when making complicated decisions, but we should not forget that choices are often interconnected and that our behaviour changes based on the mental accounts we use, which can lead us to make mistakes, like spending too freely when using a prepaid card.