Prepaid Card Detection


With the popularity of prepaid cards on a steady rise, many merchants have experienced first-hand how easy prepaid cards make it for fraudsters to commit fraud. In order to anticipate their next moves, merchants should understand the difference between the most common types of prepaid cards and know how to detect them early enough to stop fraudulent use.


What Is the Difference Between Prepaid Reloadable and Non-Reloadable Cards?


Various store-branded gift cards are the most popular type of prepaid cards out there. They make for a convenient and virtually always welcome gift, as they can be easily sold online. Their functionality is limited but straightforward. A gift card associated with a particular retailer can only be used to make purchases at that retailer’s stores, but it is common for retailers to also sell gift cards to other retailers.

Gift cards cannot be used to obtain cash, and they typically need to be registered online to work. When the balance of a gift card reaches $0, or comes close to it, the particular card becomes useless since it there is no way how to top it off.

Gift cards are covered by the Credit CARD Act’s rules for gift cards, whose purpose is to “protect consumers from certain unexpected costs and require that gift card terms and conditions be clearly stated.” For example, the rules prohibit dormancy, inactivity, and service fees on gift cards and specify that expiration dates for funds underlying gift cards must be at least five years after the date of issuance.

Gift cards are often confused with non-reloadable prepaid cards, which provide a lot more flexibility in spending. “Gift cards have limited functionality and are very straightforward. But prepaid cards are more complicated and multifunctional,” says Aleia Van Dyke, a research consultant at Javelin Strategy and Research.

The flexibility of non-reloadable prepaid cards comes from the fact that they are accepted anywhere where a particular brand of card—Mastercard, Visa, or American Express—is accepted. Instead of being used as convenient gifts, prepaid cards often serve as bank account replacement, especially the reloadable variety, which can be reloaded online or at retail locations with funds and used to make purchases, obtain cash at ATMs, or pay for online services.

Unlike regular debit cards, non-reloadable and reloadable prepaid cards are not connected to a checking account, and they tend to be easy to obtain. They have a few drawbacks, however, such as various fees and the fact that they are not covered by the Credit CARD Act’s rules for gift cards. When a prepaid card sits too long unused, it may get deactivated, or the issuer may start charging logging fees.


Why and How Should Merchants Be Able to Tell Them Apart?


According to payments fraud expert Tom Wills, fraudsters are increasingly turning to prepaid cards for the movement of money to perpetrate fraud. “For the crime bosses, money mules are people, so they're messy, and they're hard to manage. The banks have monitoring systems that detect patterns and anomalies. Once those detection systems kick in, then new mules have to be recruited. Prepaid cards are inanimate objects, so they're much more useful to criminals,” he says.

One of the most common types of prepaid scams targets the providers of online and offline subscription-based services. Using compromised online banking accounts, fraudsters easily buy a prepaid card and load it with money. They then use this prepaid card to sign up for a service, only to withdraw all money from the card before the provider of the service has a chance to re-bill.

This is but one example why the providers of online and offline subscription-based services, as well as other businesses who would like to establish healthy relationships with their customers, should learn how to detect non-reloadable and reloadable prepaid cards.

Our BIN database helps merchants quickly and conveniently distinguish individual types of cards from one another, including non-reloadable and reloadable prepaid cards, allowing them to stop fraud dead in its tracks.

This is how a prepaid card record in our database looks like (notice the fifth parameter—PREPAID RELOADABLE):