According to The Nilson Report, payment cards generate more than $6.5 trillion in purchase volume annually in the U.S.
That’s a lot of money.
As a merchant, it obviously makes sense to add “plastic” to your list of accepted payment options. Doing so allows you to tap into this multitrillion-dollar pie.However, this volume includes many types of plastic, with credit cards generating the largest share at $3.7 trillion a year.
The remainder is spread across debit cards, prepaid cards, and gift cards. While these other payment options are often used interchangeably, there are important differences in how they function — for merchants, as well as their customers.
1. How Debit Cards Work
The money on your debit card is linked directly to your bank account — which is why this type of plastic doubles as an ATM card for cash withdrawals.
Because of this link, you can’t really spend more than what’s in your bank account. However, some financial institutions provide overdraft protection, allowing you to go slightly over your account balance.
Authorizing a purchase at the POS counter involves swiping, tapping, or dipping your debit card before entering a personal identification number (PIN).
Most debit plastic comes branded with logos from the major card issuers, making this payment option usable anywhere that normal credit cards are accepted.
However, because debit and credit cards carry sensitive financial information and require a secure connection with a payment processor, they’re both subject to PCI compliance rules — complete with data security and fraud protection.
2. How Prepaid Cards Work
As the name implies, prepaid cards require that you add money (“pre-pay”) to the card in advance — via cash, credit card, or electronic check.
Because of this pre-loading, you can’t spend more than what is currently on the card. This is true even if you’re only a single penny short of making a legitimate purchase.
Many prepaid cards come branded with a Visa, Mastercard , Discover, AmEx or JCB logo, making them usable everywhere normal plastic is accepted. Just as with debit and credit cards, prepaid cards are also subject to PCI compliance rules.
Although still susceptible to fraud, the upside is:
- You can only lose what is currently on the card (no more)
- No sensitive information is directly attached to the card. This is especially true when funding prepaid cards with cash
3. How Gift Cards Work
Gift cards are very similar to prepaid cards, with three important distinctions:
- Gift cards don’t carry revolving balances. You can only load them one time.
- The person funding the gift card usually isn’t the same person who uses it. It’s a “gift” after all.
- Gift cards aren’t accepted everywhere. In fact, they are usually tied to a single store or chain.
Here’s a useful analogy.
Grandpa Joe orders a $20 Amazon gift card that he then gives to his granddaughter, Sarah. She can now spend this money as she pleases — but only at Amazon, and only up to $20.
As with all types of plastic, gift cards carry expiration dates. When Sarah’s gift card expires, any unused money simply disappears. But this is in sharp contrast to credit, debit and prepaid cards that all carry their balances over to replacement cards (with their new expiration dates).
Gift cards typically don’t need to follow PCI compliance rules since they aren’t backed by the major card brands. Besides, the most that Sarah (or Grandpa Joe) can lose is $20.
Which Payment Cards Should Your Business Accept?
If you’re already set up to accept credit cards, then you’re already set up for debit and prepaid cards, as well. All three of these types of plastic can be accepted on the:
- Same hardware (for in-store purchases)
- Same software (for e-commerce shopping)
However, if you don’t currently accept credit cards, or are interested in adding gift cards to your list of payment offerings, our merchant services team can certainly help you get started.