Episode 147 - The Apps of the Card World: Closed Loop Prepaid - Dom Morea, Fiserv

Prepaid cards are the “apps” of the card world. Join George and Fiserv’s Head of Prepaid Dom Morea as they introduce prepaid’s twin modalities - open loop and closed loop - and then dive into how the gift card industry has morphed into a far broader set of uses cases. And plan to return for the next episode as they discuss open loop’s evolution.

Card payments have four modalities:

• Charge Cards. There are charge cards that are a form of very short term credit, you pay off in full the monthly statement
• Credit Cards add the option of revolving all or a portion of the debt obligation and, if you do, you pay interest on those charges

Both of these are products that we buy as consumers or businesses. And we’re paying with money we don’t have at the moment of the transaction. They are “pay after” products.

• Debit Cards. Debit Cards, on the other hand, are a feature of a specific checking account. It draws on funds that are available right now. It’s a “pay now” method. As soon as the issuer authorizes the transaction, a hold for that amount is placed on funds in your account.
• Prepaid Card. The final modality operates in “pay before” mode. That’s the prepaid model where funds have been placed in an account to be spent at a later date. Like debit, prepaid draws on funds that are already in place. In most cases, the prepaid funds owned by an accountholder are pooled in a single bank account.

Prepaid is used in two different manners

1. Open loop prepaid cards are network branded (think Visa and Mastercard). They can be used anywhere the network’s cards are accepted.
2. The second approach is closed loop. This is the domain of the gift card where a merchant has pre-sold an obligation to provide goods or services up to the value in the prepaid account.

Prepaid Use Cases Abound

Prepaid is big business. Go into any chain drugstore and you’ll see a rack with both open and closed loop prepaid cards for sale. For years, the physical footprint of that “prepaid mall” has been the most profitable square footage in the store.

The prepaid world has some very interesting dynamics. Unlike credit card products that may be issued to millions of cardholders and used for all kinds of purchases, a prepaid program may only serve a few thousand and may be locked down for special purposes.

The Apps of Cards

That’s why we think of prepaid as the “apps” of the card world. Prepaid lends itself to some very specific use cases and program types.

In this first of two interviews with Dom Morea, Fiserv’s Head of Prepaid, we cover closed loop prepaid and some of the new and growing use cases Fiserv has supported, often driven by COVID-19.

Here’s Dom discussing B2B use cases for closed loop prepaid programs:

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