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What is a prepaid card?

Learn about how prepaid cards work, who they’re best for, and how to get your own.

Table of contents

A prepaid card looks and works just like any other corporate payment card. It has the same cardholder name and number on the front, and the magnetic strip and CVC on the back.

You can also use prepaid cards with the same retailers and make the same purchases as with credit cards. They work online, in-store, at ATMs, and over the phone. They're even contactless.

The key difference is that the card is "prepaid." Money has to be loaded onto the card before an employee can spend, and they can't spend one cent over the pre-approved limit. Which makes them perfect for modern companies. 

There is also no overdraft facility, which helps prevent overspending. But cards are reloadable, and employees can request funds instantly via mobile phone or desktop app. Their manager is notified and can top up funds immediately. 

Virtual cards

Not all prepaid cards are physical. You can also use virtual cards for online spending. This is ideal for one-off payments and avoids the need to share the precious company card details all over the Internet. 

Virtual cards also make subscriptions easier to manage. Create recurring cards that top themselves up monthly or yearly when it's time to make another payment.

These virtual cards let employees spend quickly and safely online, without needing access to a corporate card. They're also prepaid, and follow the same rules as we'll see below - except they're completely virtual and deal with electronic money.

How do prepaid cards work?

For the spender, physical prepaid cards work like any other credit or debit card. The cards work with the MasterCard and Visa networks worldwide, and are accepted at millions of stores in over 200 countries.

The difference between prepaid debit cards and credit cards is in the access to funds. Before an employee can make a purchase, they first need to be assigned funds by their manager. This can be done on a payment-by-payment basis, or the manager can pre-approve a certain amount of spending. 

For example, many companies give their employees $50 per month to spend on necessary work items - no approval required. 

Another example is the per diem for travelling teams. This can be loaded onto prepaid travel cards, and employees don't need permission to spend it. 

You may also choose to create different pre-approved limits for different employees. This could be done on a seniority level (managers have more than their reports, for example), or based on the amount of spending an employee is likely to do. And you can even choose to block ATM withdrawals for certain users, or designate the days and times of day during which cards can be used.

Virtual cards have a slightly different process. Users create new, unique virtual cards when needed. You can still create the same rules for pre-approved spend as for physical cards, but employees can make as many cards as they need. 

Key benefits of prepaid cards

Every team member can have one

The biggest issues with corporate cards comes from the fact that not everybody can have one. You end up sharing the details - which is a security risk - or you seriously inhibit your team's progress. 

Because prepaid cards have set limits and aren't connected to the bank account, you can give them to every employee who needs them (with minimal monthly fees). They don't need to bother the finance team when it's time to spend, because they have the tools they need.

And you don't have to worry about overdraft fees, credit scores, or application fees.

Automatically assign payments to spenders

Because every user has a card in their own name - and because every payment is logged in the dashboard - you always know who spends what. No more mysteries in your company's credit history, and no more constantly checking accounts. All the information is there when you need it. 

This helps with team budgeting, but also makes the end-of-month reconciliation process a breeze. 

Reduce fraud risks

Prepaid cards are also not directly connected to your company banks account - funds need to be loaded to your "wallet" via transfer or credit card. So if card details are stolen, it only affects one card, not your whole bank account.

And because every transaction is logged in real time - along with managerial approval and a reason for spending, there is no risk of employees misusing the cards. All transactions carry the name of the person who made them.

Perfect for travelling employees

Business travel always leads to expenses for employees. Many deal with these through expense reports, while a lucky few have their own company credit card. Prepaid cards let companies give travel money to teams in a safe, trackable manner. 

Employees don't have to spend out of pocket, and feel confident that they can't make mistakes. Finance teams have real-time visibility over what's being spent, and have a full transaction history for every payment.

Eliminates credit card reconciliation

Reconciling company cards is a difficult and tedious job for finance teams. But because good prepaid cards are part of a spend management system, there's nothing to reconcile. And you don't have to wait for the card statement to see what's been spent. 

Every payment is logged in your spend management software with the spender's name, vendor, amount, approving manager, and rationale for spending. And expense accounts are updated in real time, so you don't have to trawl through statements at the end of the month.

No credit checks

Because they don't operate on credit, prepaid card providers don't require a credit check.Since you can only spend the money you have, card issuers aren't concerned with bad credit. 

Instead, financial institutions need to ensure that you're a registered company, and will have a short process to validate your registration. This is in line with international anti-money laundering rules. 

Benefits for finance teams

More control over all spending

Finance teams often don't have the full picture until they receive the card statements and close the books. This makes it difficult to actively control company spending and make strategic decisions. 

Prepaid debit cards (and spend management software) show them all transactions in real time. They can quickly analyze budgets and choose where to redistribute funds if necessary. 

Higher receipt collection rates

Most credit card payments require receipts to be submitted to the finance team. Which is a boring process for everyone, and usually leads to lots of missing receipts. 

Prepaid card software lets employees submit receipts on the spot via their mobile phones. This makes it far more difficult to lose or damage the receipts. Plus, the software can verify that the receipt is valid on the spot, so you don't end up with "fake" receipts.

Manage international spending

Prepaid card providers also let you create multi-currency wallets. These let you set up accounts in euros, dollars, or pounds and load your wallets with the correct currency. So smart finance teams can avoid foreign transaction fees and even reload when certain currencies are "cheap."

Prepaid cards themselves work worldwide, and users can spend in any currency they like. Which makes them perfect for companies scaling internationally or travelling often. 

Benefits for employees

Avoid out-of-pocket spending

Companies rely on expense reports because they can't offer everyone credit cards. But every employee can have a prepaid Mastercard or Visa card to spend safely within the carefully set rules.

This reduces financial strain on individual employees who would otherwise use their own money for business costs. They're no longer a lender to their company - offering an interest-free loan. 

Easy to use

Prepaid debit cards work just like the credit and debit cards employees use in their private lives. They don't have to learn new expense processes, and can spend as needed without making costly mistakes. 

This helps teams work confidently and quickly, without needing extra guidance.

Eliminate expense admin

Many busy teams spend Friday afternoons just putting together expense receipts and submitting claims. Instead, you can eliminate expense reports altogether, and automate what little admin is actually required. 

A prepaid travel card tracks all their payments and lets them submit receipts from anywhere in a tap of their mobile phone. So Fridays are spent on work that actually helps the company grow.

Get the perfect prepaid card for your business

Give your finance team the right tools to manage spending, with Spendesk cards.

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Re-imagine the on-the-go spending experience with smart debit cards.

Last update: August 13, 2021