Is There a Difference Between Debit and Reloadable Cards in Mobile Payments?

December 21, 2018         By: Steven Anderson

For most people, a debit card is a familiar tool to have on hand. For those who are unbanked, meanwhile, the general equivalent is the reloadable, or prepaid, card, a tool that works about the same way that a debit card does. Or does it? That’s a point Mercator Advisory Group recently took on, and sent our way a report considering the differences and similarities found therein.

The Mercator report, titled “The Blurred Lines Between Debit and Prepaid Cards”, notes that the two are actually quite similar in nature. In fact, the report’s co-author and Mercator’s director of debit and alternative products advisory service Sarah Grotta, noted “At first glance, prepaid and debit appear so similar that one could conclude that the payments industry took two separate paths to end up with the same product. Initially prepaid product providers were developing solutions to offer users a bankcard-like product. Now financial institutions are seeing inspiration in GPR card attributes.”

That being said, there were several major differences. First, there were differences in the average fee; while prepaid cards called for a 1.29 percent interchange, debit cards called for only 0.77 percent. The average account longevity saw major differences as well, with prepaid cards lasting less than a year, but debit cards lasting an average of 16 years. Moreover, prepaid cards accounted for $108 billion annually in business, while debit cards brought in $2.1 trillion annually, a difference of around 20-fold. Finally, prepaid cards represent just 78 million, but debit cards account for 476 million.

while it’s clear that there’s a demand for prepaid cards—78 million cards can’t be all lying, let alone the $108 billion such business brings in—it’s nowhere near as substantial as the market for debit cards. In fact, it’s enough to make clear that the unbanked are at best a niche market. This also assumes that there’s no overlap between the debit card and prepaid card markets. If there is any at all—even a trivial amount—that only skews the proportions.

At any rate, the Mercator study proves that these two mobile payments methods are quite similar, yet one has significantly more utility than the other, as demonstrated by the sheer differences in size of market and amount routed through these platforms.