What is Prepaid Card and How Does it Work, Types, Components, Benefits, Features, Eligibility and Documents Required

What is Prepaid Card?

A prepaid card is a payment card that you load with money before you use it. Unlike a credit card, which lets you borrow money up to a limit, a prepaid card only allows you to spend the amount you have already added. In India, banks and financial institutions issue prepaid cards that you can use for shopping, bill payments, travel expenses, or even as gift cards. Since you cannot spend more than the balance on the card, it helps you control your expenses and avoid debt. Prepaid cards often carry logos like Visa, Mastercard, or RuPay, so they work at most stores, online websites, and ATMs that accept these networks.

Types of Prepaid Cards

Closed-Loop Prepaid Cards:

These cards work only with a specific merchant or group of merchants. For example, a prepaid card issued by a department store can be used only at that store’s outlets. In India, popular examples are gift cards for restaurants (like Café Coffee Day gift cards) or retail chains (like Big Bazaar Gift Card). Because they are limited to a single chain, they may come with special offers or discounts within that network.

Open-Loop Prepaid Cards:

Open-loop cards carry the logo of a payment network such as Visa, Mastercard, or RuPay. You can use them anywhere that network is accepted anywhere in India and, in many cases, internationally. Banks like HDFC, SBI, and ICICI offer open-loop prepaid cards. You can load money, and then spend at multiple stores, withdraw cash from ATMs, or pay online.

Semi-Closed Loop Prepaid Cards:

These cards strike a balance between closed and open loop. A semi-closed card is accepted at multiple specified merchants or outlets but is not accepted universally with the payment network. For instance, a prepaid card valid at several fuel stations or at a chain of restaurants falls under this category. In India, many e-wallets like Paytm and MobiKwik issue semi-closed wallets that act like prepaid cards at partner merchants.

Payroll/Mass Transit Prepaid Cards:

Organisations sometimes issue payroll cards to their employees. Instead of receiving a salary directly into a bank account, employees have a prepaid card on which their salary is loaded each month. Similarly, some city metro systems or bus services issue transit prepaid cards for frequent travellers. In India, Delhi Metro’s smart card and Bangalore Metro’s prepaid card help commuters pay fares without cash.

Components of a Prepaid Card

• Card Number: A unique 16-digit number printed on the front of the prepaid card. This number identifies your card when you make transactions online or at a merchant’s terminal.
• Cardholder Name: Some prepaid cards allow you to personalize them with your name; others, especially gift cards, do not carry a name and are treated as bearer instruments.
• Expiry Date: Most prepaid cards have a validity period (often two to five years). After the expiry date, you may need to request a replacement card or spend any remaining balance before the date passes.
• CVV (Card Verification Value): A three-digit number printed on the back of the card. This is used to verify that the person making an online purchase has physical possession of the card.
• Chip and Magnetic Stripe: Modern prepaid cards include an EMV chip for secure transactions and a magnetic stripe for older POS terminals. The chip encrypts information to prevent fraud.
• PIN (Personal Identification Number): A four-digit code that you set when you activate the card. You need this PIN for ATM withdrawals and many point-of-sale transactions. The PIN ensures that even if someone steals your card, they cannot use it without knowing this secret code.
• Issuer’s Branding: The bank’s or institution’s logo appears on the card, along with the payment network logo (Visa, Mastercard, or RuPay). This indicates where the card is accepted.

Benefits of Prepaid Card

• Budget Control: You can spend only up to the balance you loaded. There is no risk of overspending or running into debt, making these cards ideal for people who want to track their expenses closely.
• Easy to Obtain: Most prepaid cards do not require a bank account or extensive credit checks. You simply need basic KYC documents (like Aadhaar and PAN) to apply. This makes them accessible to students, travellers, and individuals without a bank account.
• Safety and Security: Carrying cash can be risky. If a prepaid card is lost or stolen, you can block it and transfer any remaining balance to a new card, provided you have registered the card in your name. Also, since the card holds only a limited amount, potential losses are smaller compared to a lost debit or credit card.
• Wide Acceptance: Open-loop prepaid cards (Visa/Mastercard/RuPay) work at most merchants, ATMs, and online websites in India. You can also use them abroad if they belong to international networks.
• Online Shopping: Prepaid cards make online shopping convenient, especially for people who do not have a credit or debit card. You simply enter the card number, expiry, and CVV to make payments on e-commerce sites.
• Helps in Gifting: Gift cards are a popular form of prepaid cards. Recipients can choose what they want to buy, which is more flexible than giving cash or a single-store voucher.
• Travel Convenience: Travel prepaid cards enable you to load foreign currency in advance. In India, some banks and Forex companies issue prepaid travel cards (e.g., SBI Foreign Travel Card, HDFC ForexPlus Card) that you can use abroad for purchases and ATM withdrawals, often at better exchange rates than cash.

Features of Prepaid Card

• Reloadable or Non-Reloadable: Reloadable prepaid cards let you add money multiple times until the card expires. Non-reloadable cards, often referred to as gift cards, come pre-loaded with a fixed amount and cannot be topped up.
• Contactless Payment: Many modern prepaid cards support contactless payment (NFC), allowing you to simply tap the card at the merchant terminal for quick transactions.
• Mobile App Support: Several issuers offer mobile apps where you can check your balance, view transaction history, block a lost card, or add money directly from your bank account or UPI app.
• Secure Chip Technology: EMV chips on prepaid cards generate a unique code for every transaction, making it difficult for fraudsters to clone cards.
• International Usage: Open-loop travel prepaid cards allow you to load multiple currencies (USD, EUR, GBP, etc.) and spend abroad without high forex markup. In India, these cards can be used in ATMs and shops worldwide.
• Customizable Limits: You can set daily spending limits, ATM withdrawal limits, and online transaction limits. This adds an extra layer of security and helps manage your budget.
• No Overdraft or Credit Facility: Since the card only holds prepaid funds, there is no overdraft. This eliminates the risk of late payment fees or interest, unlike credit cards.
• Reward Programs: Some banks offer reward points, cashback, or discounts when you use prepaid cards at partner merchants. For instance, a prepaid card linked to an e-wallet might give cashback on utility bill payments.

How Does Prepaid Card Work?

Application and Issuance: You apply for a prepaid card at a bank branch, online banking portal, or through an authorized agent. You must complete a simplified KYC process, which typically includes submitting proof of identity (such as Aadhaar or PAN) and proof of address (such as Aadhaar or utility bill).

Loading Funds: Once approved, you receive a physical or virtual prepaid card. You then load money onto the card by transferring from your savings/current account, using net banking, UPI, or depositing cash at the bank branch or partner outlets.

Spending Transactions: When you make a purchase, the merchant sends a request to the payment processor. The processor checks if there is enough balance on your prepaid card. If sufficient, the transaction is approved, and the amount is deducted from your card balance.

Balance Tracking: Each time you use the card, you can check the remaining balance via SMS alerts, mobile app, ATM, or online portal. The balance reduces automatically with every transaction.

Reloading as Needed: If your balance runs low, you can reload additional funds, provided the card is still valid. Some banks allow auto-reloading when the balance falls below a set threshold.

Expiry and Closure: Prepaid cards have an expiry date. Before the expiry, you can either spend the remaining balance or transfer it to another account/card if the issuer permits. After expiry, the card stops working, and you must request renewal or closure.

How to Use Prepaid Card?

• Point-of-Sale (POS) Transactions: Visit any shop or merchant that accepts Visa, Mastercard, or RuPay (depending on your card network). Swipe, insert, or tap the card on the POS terminal. Enter your PIN when prompted. The transaction amount is deducted instantly.
• Online Purchases: When shopping online, enter the 16-digit card number, expiry date, and CVV at checkout. Some websites may also ask for the billing address; provide the address you used during card activation. After validating the details, the payment gateway deducts the amount.
• ATM Withdrawals: If your prepaid card allows ATM withdrawal (common with travel or open-loop cards), insert your card at any affiliated ATM. Enter your PIN and select the withdrawal amount. The ATM dispenses cash, and the same amount is reduced from your card balance. Keep in mind that banks may charge an ATM withdrawal fee.
• Mobile Wallet Linking: Some prepaid cards can link to mobile wallets like Paytm or PhonePe. You can add the prepaid card as a payment source and use the wallet app to pay merchants or transfer money to bank accounts.
• Contactless Tap-and-Go: For contactless-enabled prepaid cards, hold your card near the NFC reader at a merchant terminal. The terminal automatically reads the card information. Enter your PIN if the transaction amount is above a certain limit (usually ₹2,000 in India).
• Recurring Payments: You can set up automatic bill payments (like utility bills, subscriptions, or mobile recharges) using a prepaid card. Provide the card details to the billing company, and they will deduct the specified amount on the due date, as long as you have sufficient balance.
• Check Balance and Transactions: Use the bank’s mobile app, net banking portal, or send an SMS to a designated number to check your remaining balance. You can also visit any bank ATM to check the balance or transaction history. Remember to keep track of your spending to avoid declined transactions.

How to Add Money on a Prepaid Card?

Net Banking Transfer:

Log in to your bank’s net banking portal. Under the “Prepaid Cards” section, select “Reload” or “Add Money.” Enter your prepaid card number and the amount you wish to load. Confirm the payment using OTP or other authentication methods.

Mobile Banking App:

Open your bank’s mobile app and navigate to the “Cards” or “Prepaid Card” tab. Choose “Reload Card” and enter the amount. Approve the transaction with biometric authentication, PIN, or OTP.

UPI Transfer:

Some banks and prepaid card issuers allow UPI-based top-ups. Open a UPI app (like PhonePe, GPay, or Paytm), select “Send Money,” and enter the prepaid card’s unique UPI ID or VPA. Enter the amount and complete the payment using your UPI PIN.

Cash Deposit at Bank Branch:

Visit the issuing bank’s branch with your prepaid card. Fill out a prepaid card reload form, submit it along with cash or a cheque for the desired amount, and the bank executive will update your card balance.

Partner Outlet or Kiosk:

Some banks have tie-ups with retail outlets or kiosks where you can reload prepaid cards. For example, you may visit a designated customer service point or kiosk at a mall and pay in cash. The outlet’s machine will reload your card instantly.

Auto-Reload Facility:

If enabled by the bank, auto-reload automatically tops up your prepaid card when the balance falls below a specified threshold. You set the minimum balance limit and reload amount. When the card balance dips below that limit, the bank transfers the predefined amount from your linked savings account.

Prepaid Card Eligibility

Age Criteria:

Generally, you must be at least 18 years old to apply for a prepaid card in India. Some banks issue teen or minor prepaid cards for children aged 10 and above, but these usually require a parent or guardian to be the primary account holder.

Basic KYC Requirement:

You need to complete KYC (Know Your Customer) norms to obtain a reloadable prepaid card. This means submitting proof of identity (Photo Aadhaar, Voter ID, PAN card, or Passport) and proof of address (Aadhaar, utility bill, or rent agreement).

Bank Account Not Always Required:

Unlike debit cards, prepaid cards do not require you to have a bank account. However, if you want to reload the card via net banking or mobile banking, you will need an active bank account with internet banking or UPI enabled.

Income Proof Not Mandatory:

Since you are spending money, you already loaded, banks typically do not ask for income proof or salary slips. This makes prepaid cards accessible to students, job seekers, and those with irregular incomes.

Special Categories:

Some cards are issued under specific schemes. For example, government gift vouchers or welfare cards issued to certain beneficiaries may follow relaxed KYC norms, relying on existing identity proofs like Aadhaar.

Documents Required for Prepaid Card Application

Proof of Identity (Any One):

• Aadhaar Card with photograph
• PAN Card
• Voter ID Card
• Passport
• Driving Licence

Proof of Address (Any One):

• Aadhaar Card (if not used as identity proof)
• Utility bill (electricity, water, or gas) not older than three months
• Rent Agreement
• Bank Statement or Passbook with current address
• Passport (if not used as identity proof)

Photograph:

One recent passport-size photograph, especially if you are applying at a branch.

Mobile Number and Email:

A valid mobile number to receive OTPs and transaction alerts. Most banks also ask for an email address to send digital statements or notifications.

Parent/Guardian Documents (If Applicant is a Minor):

For teen or minor prepaid cards, the parent or guardian’s KYC documents are required. The minor’s birth certificate or school ID card may also be asked.

Examples of Prepaid Card

SBI Global Forex Card:

Issued by State Bank of India (SBI), this is a multicurrency prepaid card. You can load up to 22 currencies, including USD, EUR, GBP, and JPY. It is widely accepted at ATMs and shops internationally and offers competitive exchange rates.

HDFC Bank ForexPlus Card:

HDFC’s travel prepaid card lets you load foreign currency in advance. You can use it abroad for shopping and ATM withdrawals. It comes with a chip and PIN, and you can check balances via SMS or the HDFC mobile app.

ICICI Bank Rubyx Prepaid Card:

A domestic travel prepaid card issued under the RuPay network. You can use it at hotels, restaurants, and shops across India, and withdraw cash from RuPay ATMs. It also offers insurance coverage for lost card or travel delays.

Axis Bank MyZone Prepaid Card:

A multi-currency card that works on Visa network. You can load USD, EUR, GBP, and more. It provides emergency card replacement and insurance benefits. Use it overseas for purchases and cash withdrawals.

Paytm Prepaid Card:

Issued by Paytm Payments Bank, this Rupay-branded card lets you spend the balance in your Paytm wallet at any merchant accepting RuPay. It is reloadable via Paytm app, UPI, net banking, or by scanning at Paytm QR code outlets.

MobiKwik Wallet Prepaid Card:

MobiKwik issues a semi-closed prepaid card linked to your MobiKwik wallet. You can use it at partner merchants and online platforms where MobiKwik is accepted. Reloading is easy via UPI, net banking, or credit/debit cards.

Amazon Pay ICICI Prepaid Card:

A reloadable prepaid card co-branded by Amazon Pay and ICICI Bank. You can use the card on Amazon.in and at other outlets that accept Mastercard. Reloading can be done via UPI, net banking, or debit card.

Gift Vouchers from Retail Chains:

Many retail stores like Domino’s, Big Bazaar, and Shoppers Stop offer gift vouchers that act as closed-loop prepaid cards. You can buy these vouchers and gift them to friends or family; they are redeemable only at the issuing store.

Alternatives to Prepaid Card

Debit Cards:

A debit card is linked directly to your savings or current account. Whenever you make a purchase, the amount is deducted straight from your bank account. Unlike prepaid cards, debit cards do not need to be reloaded. However, if fraud occurs, your entire bank balance could be at risk. Debit cards may also charge annual fees or require a minimum balance.

Credit Cards:

Credit cards let you borrow money from the issuer up to a pre-approved limit. You get a grace period to pay back without interest if you clear the outstanding by the due date. Credit cards offer benefits like reward points, cashback, and discounts. However, they can lead to debt if not managed well and often charge high interest rates on unpaid balances.

Mobile Wallets (e-Wallets):

Wallets like Paytm, PhonePe, and Google Pay let you store money digitally and pay merchants or transfer money to bank accounts. Wallets are often easier to use for small daily transactions and bill payments. The main drawback is that not all merchants accept wallet payments, and linking bank accounts or cards may be necessary to add funds.

Unified Payments Interface (UPI):

UPI is an instant real-time payment system developed by National Payments Corporation of India (NPCI). Apps like Google Pay, PhonePe, and BHIM use UPI to let you transfer money between bank accounts quickly. There is no card involved; you simply use a UPI ID or scan a QR code. UPI is widely accepted at shops, online platforms, and for bill payments, making it a convenient alternative to carrying a card.

Cash:

Even in a digital era, cash remains a universal payment method. You do not need to worry about network issues or compatibility. However, carrying large amounts of cash can be unsafe, and you might miss out on discount offers or cashback available through electronic payments.

Virtual Cards:

Some banks and fintech platforms offer virtual cards that exist only in digital form. You generate a card number, expiry, and CVV for one-time or limited use. Virtual cards are highly secure for online shopping but cannot be used for in-store or ATM transactions.

Contactless Wearables:

Smart bands or wearable devices linked to your bank or e-wallet act like prepaid or debit cards. You tap the band on a payment terminal to make a purchase. While still gaining popularity in India, wearables offer quick and convenient payments for small-ticket transactions.

Bank Account with NFC Debit Function:

Many banks now issue contactless debit cards with NFC capability. For day-to-day purchases under a certain limit (usually ₹2,000), you just tap the debit card. This option combines the convenience of prepaid contactless payments with the direct linkage to your bank balance.