Cards, cards everywhere: ATMIA addresses the growing stored-value market

Stored-value cards. We've all used them. They're those cards we get for birthdays, wedding showers and holidays that are loaded with credit - credit that gives us the option to purchase what we want.

But the gift card isn't the only type of SVC - payroll and healthcare cards also fall into the category. Some are closed-loop, and some are open-loop. The distinction is relatively simple: closed-loop cards can only be used at certain locations for limited purposes; open-loop cards can be used for many things in many places.

Some cards are branded with MasterCard, VISA or Discover logos or holograms. Other cards aren't branded at all, but can be used like a debit/ATM card with a PIN at the POS or ATM.

The issuance of prepaid, stored-value cards has exploded in the United States over the last decade.

The problem, said Lyle Elias, executive director of Hurst, Texas-based Value Payment Network and founder of the ATM Industry Association's Debit Council, is that the industry grew too fast. Now lawmakers, industry experts, issuers and acquirers are frantically trying to figure out what a prepaid card is, how it should be regulated and whom or what should be in charge of transactions and fees.

The SVC is born: U.S. style

Prepaid, stored-value cards began to hit the U.S. market during the early 1990s. Closed-loops were the first. Open-loops hit the market about five years later.

Prepaid products in Europe and the United Kingdom, on the other hand, have been available for a number of years, and products and regulations in those markets have matured.

According to Gary Palmer, founder and chief operating officer of Florida-based Wildcard Systems Inc., an electronic host for SVCs, virtual stored-value accounts and Internet payments, the U.S. market needs to catch up.

Palmer, during a presentation at the ATMIA Conference East in February, said his company's prepaid business experienced growth of between 40 percent and 50 percent in both 2001 and 2002, and only about 15 percent of that business was to support overseas companies.

What's Important The industry is struggling to define what a stored-value card is. There are no federal regulations in place to limit prepaid card issuance, options or transaction fees at the ATM or POS. Prepaid, stored-value card functionality is not utilized. SVC functions are "siloed," or kept separate on separate cards.

According to Susan Lynch, director of Global Debit Fraud Management for MasterCard International, prepaid is estimated to be a $2 trillion industry. It's an area that has exploded over the last decade, with most of the growth occurring in the United States.

But that rapid growth has left potential security gaps that issuers need to consider, she said during the ATMIA East Conference. "The card-issuing bank must maintain ownership and control of the MasterCard program (in order for MasterCard to sign on with the financial institution)," she said. "If there's a problem, MasterCard will call the issuing bank."

That arrangement gives MasterCard more control. And trying to find a balanced level of control, according to Elias, is one reason the Debit Council was founded.

Regulation and legislation

The Debit Council expects to publish a manual that outlines best practices in prepaid, stored-value cards. No publication date for the manual has been set.

"That seemed to be an area where best practices were conspicuously missing," Elias said. It also plans to collect PIN debit/ATM card fraud statistics in Cognito - the ATMIA Global ATM Security Alliance's crime data management system.

"We want to be a conduit of accumulation for crime and fraud statistics," Elias said. "There's a lot of information gathered on the side of the networks, but on the PIN and debit side, there's a lot that's missing. We want to see if we can come up with a way to combat that type of crime … and figure out ways to calculate it."

At this point, he added, the Debit Council is simply trying to get its hands around the issues.

"Right now we're working to determine what prepaid and stored-value is," Elias said. "In the industry, we're all trying to determine that. ... What is it that distinguishes a bank-issued prepaid card from a regular ATM/debit card? What network rules apply?"

And what about regulation and legislation?

According to Lynch of MasterCard, there are no steadfast rules. There are personalized cards - cards issued that have the cardholders' names on them; and non-personalized - cards that are blank. Some cards are issued to businesses and some are issued directly to consumers. And at the end of the day, there is no clear distinction between any of them.

Some issuing FIs have set their own rules and guidelines. And MasterCard and VISA also have requirements, like the requirement of Social Security numbers that are kept on file along with card holders' names.