Prepaid cards are a widely used payment method. In the US, the prepaid cards market reached nearly $800 billion in 2024, while the Chinese prepaid card market is expected to exceed $648 billion by 2030. Unlike debit or credit cards, prepaid cards are funded in advance, which changes how spending limits, risk, and access are handled across payments.

Below, we discuss what a prepaid card is, how prepaid cards work, and their common use cases, fees, and limitations.

What’s in this article?

• What is a prepaid card, and how does it work?
  
• What are prepaid cards used for?
  
• What are the main types of prepaid cards?
  
• How do prepaid cards differ from debit and credit cards?
  
• How are prepaid cards funded and reloaded?
  
• What fees and limitations do prepaid cards typically have?
  
• How Stripe Payments can help
  

What is a prepaid card, and how does it work?

A prepaid card is a payment card that lets you spend only the money you’ve already loaded onto it. Prepaid cards are typically issued on major card networks, so transactions are processed like standard card payments at checkout.

There’s no borrowing, no credit line, and usually no direct link to a personal bank account. You add funds first, then use the card until the balance runs out. Once the card balance is at zero, the cardholder can’t use it again until more money is added. When a payment is attempted, the issuer verifies the card’s status and available balance in real time.

What are prepaid cards used for?

Prepaid cards are widely used when spending control, speed, or predictability are important.

Here’s what they’re used for:

• Payroll and contractor payments: Employers can pay workers without sending funds to bank accounts. Wages are loaded directly onto the card.

• Business expenses: Companies issue prepaid cards with predefined limits for travel, procurement, or project-based spending.

• Gifts and incentives: Gift cards, rebates, promotions, and rewards are classic prepaid uses.

• Online and subscription payments: Fixed balances help cap subscription plan spending and reduce exposure if card details are compromised.

• Travel spending: Travelers use prepaid cards to manage budgets and avoid carrying cash, and some prepaid cards support multiple currencies.

• Financial access: Prepaid cards give unbanked or underbanked users a way to receive funds, make digital payments, and withdraw cash.

• Benefit and aid distribution: Governments and nonprofits use prepaid cards to quickly deliver benefits, refunds, or relief.

• Purpose-specific funds: Clear spending boundaries can be set for stipends, allowances, refunds, or temporary programs.

• Short-term programs: Once the balance is spent, the card naturally expires, so there’s no need to close the account.

What are the main types of prepaid cards?

“Prepaid card” is an umbrella term that covers several distinct models. The differences reflect where the card can be used, whether it can be reloaded, and what problem it’s designed to solve.

Here are the main types:

• General-purpose reloadable cards: Open-loop cards that are usable anywhere the network is accepted. These are designed for ongoing use.

• Gift cards: These cards come loaded with a specific amount, can’t be reloaded and are either limited to a specific business or network-branded.

• Payroll cards: Cards that are reloaded on a regular schedule to distribute wages and support everyday spending or cash withdrawals.

• Government and benefits cards: Cards used to deliver public funds, often with reloading capability.

• Travel and multicurrency cards: Cards designed for cross-border spending, sometimes holding multiple currencies.

• Expense and corporate cards: Cards issued by businesses to control spending by amount, category, or time period.

• Virtual prepaid cards: Digital-only cards for online payments.

How do prepaid cards differ from debit and credit cards?

Prepaid cards differ from debit and credit cards in terms of risk, access, and how money moves before and after a purchase.

Here’s how these differences show up:

• Source of funds: Prepaid cards use money loaded in advance. Debit cards pull from a bank account. Credit cards draw on a credit line.

• Spending limits: Prepaid cards stop at zero. Debit cards depend on account balance and overdraft rules. Credit cards are capped by a credit limit.

• Access requirements: Prepaid cards usually don’t require a bank account or credit check. Debit and credit cards do.

• Debt and interest: Prepaid and debit cards don’t create debt. Credit cards can, and unpaid balances accrue interest.

• Credit impact: Prepaid and debit cards don’t affect credit history. Credit cards do.

• Business acceptance: Some businesses, such as hotels and car rental companies, require credit cards for deposits or incidentals. Prepaid cards are often declined in these situations because they can’t guarantee additional funds.

• Risk exposure: Losses on prepaid cards are limited to the loaded balance. Debit cards expose bank funds. Credit cards expose a credit line.

• Consumer protections: Credit cards offer the strongest protections. Prepaid cards sometimes include similar safeguards, but coverage varies by program.

How are prepaid cards funded and reloaded?

Funding determines how flexible and scalable a prepaid card program can be. There are several ways to fund and reload a card.

• Initial load at issuance: Cards are funded when first purchased or distributed.

• Direct deposit: Employers or agencies load funds on a recurring basis.

• Bank transfers: Money moves electronically from bank accounts to the card.

• Cash reloads: Some cards accept cash at participating retail locations.

• Card or wallet transfers: Funds might be moved from another prepaid card or a digital wallet.

• Mobile and online tools: Apps or online dashboards support reloading, balance checks, and transaction tracking.

Issuers typically set reload limits at the transaction, daily, or total-balance level to manage fraud risk and meet regulatory requirements. Some prepaid cards only accept funds from approved sources, while others allow multiple reload methods.

What fees and limitations do prepaid cards typically have?

Different prepaid card issuers and programs come with different fees and constraints. Understanding the tradeoffs matters.

Consider the following when selecting a prepaid card:

• Activation or purchase fees: These are common with consumer cards sold in retail stores.

• Monthly maintenance fees: These are sometimes charged to keep the card active and often waived with direct deposit or regular use.

• Reload fees: Cash reloads might cost more than electronic ones.

• ATM withdrawal fees: The card issuer, the ATM operator, or both can charge fees.

• Foreign transaction fees: Cross-border use can incur currency conversion charges unless the card is designed for travel.

• Inactivity fees: Some cards charge a fee after a long period of inactivity.

There are also drawbacks that apply to all types of prepaid cards. These cards typically don’t work where deposits or holds are required, and prepaid cards don’t contribute to credit history. There often are also limits on stored value or reload amounts. Keep this in mind when deciding whether to use a prepaid card versus a different form of payment.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.

• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.

• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.

• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.