Earlier this year, the federal government established new regulations to address Canadians' concerns about prepaid payment products (see the regulations in their entirety here: Canadian Prepaid Payment Products Regulations.
Contrary to popular belief, the regulations did not come into effect because of prepaid's perceived high fees, but rather because some companies made it difficult for consumers to understand how the cards work and what the card fees were, making it difficult to price shop.
With the regulations now in place, there's an onus on Canadians to understand what prepaid products are, how they differ, and how they are affected by the regulations.
1. Not All Prepaid Cards are Created Equal
The first thing to know is that prepaid cards are not all treated the same under the regulations. They fall into two categories: Promotional cards and Non-Promotional cards.
Non-promotional prepaid products are the most widely used by consumers. These are the cards you can purchase at retailers like Shoppers Drug Mart, or purchase at bank branches for personal use or gifts using your own money.
Under the new regulations, these non-promotional cards:
- Must have clearly disclosed information about the card and the card fees
- Have funds that do not expire
- Cannot levy maintenance fees for at least 12 months
Promotional cards on the other hand are purchased by businesses or organizations as part of reward, incentive, loyalty, or rebate programs.
The funds on the card are provided by these businesses, and are given out for a specific purpose, typically with limitations on how, when, and for how long the card can be used (think rewards you receive from work, or rebates you get from cereal box contests or electronic products.) Businesses like using prepaid cards because recipients (like employees and customers) prefer them for their ease of use and versatility since they can be used at millions of locations around the world and online.
Since the recipient is not "entitled" to these funds, the fee structure on promotional cards has more variability than non-promotional cards.
2. Prepaid Cards in Canada Cannot Have Hidden Fees
There are many different kinds of prepaid credit cards, each with varying fee schedules.
As mentioned, high fees were not the reason for the new Canadian regulations; it was the lack of disclosure of fees that was at the core of the issue.
Today, the regulations require much clearer information on the product's packaging so that consumers know exactly what they're purchasing, and can better compare prepaid products.
3. Prepaid Cards are Not Gift Cards
While prepaid credit cards can be used as gifts, and are frequently referred to as being gift cards, they are not gift cards.
Gift cards can only be used at certain locations, like retail shops or malls; prepaid cards are financial products in the same category as credit cards or debit cards.
Prepaid cards also function on global payment networks like Visa, MasterCard, American Express, and others. As such, they offer protection against fraudulent transactions, being lost or stolen, and provide the ability to transact around the world and online in any currency at millions of locations.
Unlike gift cards, prepaid cards can be used to buy almost anything, anywhere, anytime.
4. Most People Prefer Prepaid
Prepaid cards are growing in popularity. Surveys show that promotional prepaid cards are widely accepted and preferred by recipients when they're part of reward, incentive or loyalty programs.
In fact, the 2014 Canadian Incentive Trends survey found that when it comes to motivating people, prepaid cards are preferred 2X more than retail gift cards and 9X more than merchandise.
Businesses also prefer using prepaid credit cards because they provide payment flexibility, and they offer significant advantages over traditional payment products like paper cheques. Card functionality is variable as well: they can be reloadable, one-time-use, restricted access, ATM enabled, or even be personalized and branded for promotional purposes.
