Prepaid cards come in many styles, colors, and companies. They can also be the ever-growing payroll cards. These work in a similar manner to either credit cards or debit cards, depending on the type of card purchased and the issuing bank or company. Prepaid cards are usually 'loaded', which simply means that the consumer pays a certain amount of money to a merchant or card issuer so that they have that much on the card for future purchase, at the merchant or online.
These cards have become so popular that even though there is evidence of fraud and it has struck some merchants and consumers, there has been little interest in stopping the problem. As it grows, however, there will be a greater demand to tighten down security.
This, however, leaves merchants in a difficult situation. The idea of prepaid cards means that people who normally could not get a credit or debit card due to their poor financial history or other reasons, they can have the comfort and security knowing that they may shop at stores or online for items they wouldn't normally be able to do otherwise.
For the merchant, this also means that there is a risk of chargebacks and other fees that are often a result of fraud. While it's more difficult for merchants to police gift cards, that's another topic and one that merchants are no entirely helpless to deal with. But for prepaid cards, consumers are generally issued a PIN number (Personal Identification Number) that they would use much like a debit card.
Since a bank is the issuing body in this transaction, they have a vested interest in ensuring that each transaction is done without fraud. Thieves have become more cunning in recent years and have found ways to refill or 'charge up' cards, as well as other methods of stealing from merchants. Often, if you've ever filled up gas using a card, you will notice that your account is only charged $1 initially. This is basically a holding charge until the final total can be submitted to the bank. Prepaid card holders may buy $50 or even $75 dollars in gas, but only have enough money on the card to cover one or two dollars.
The merchant has to take the hit, not the bank. BIN numbers and BIN database have become a tool for merchants to fight back against this level of fraud. While prepaid cards are a great convenience, there is still enough information about the consumer associated with them that a merchant can protect themselves and the consumer against theft and fraud.
By using a BIN database, the merchant can determine if the person using the card is actually who they claim to be by verifying either their billing address, zip code, or other pertinent information. The cost of using a BIN database is far outweighed by the benefits of knowing those purchases will be covered by the issuing bank and won't come back as a chargeback.
