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May 2017

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I Have Bad Credit. Will Business Prepaid Cards Build My Credit?

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Question: I Have Bad Credit. Will Business Prepaid Cards Build My Credit?

Answer: Short answer. No.

 

Business Prepaid Cards will not help you rebuild or build credit because it is not a credit product.

“Credit” in one sense of the word as you know it, is a measure of risk in doing business with you. It is a measure of trust when a company provides a product, money or service in advance of you paying for all or some of it. An example would be when you purchase a new car, and while you may pay for a portion via a down payment, you’ll most likely drive the car off the lot with a heavy debt of money still owed. Businesses need to know how to gauge the risk of doing business with you and the likelihood that you will pay for your committed debt.

In the business prepaid card world, the card issuers are not extending you any credit and are only providing access to a payment platform (consisting of payment cards, a Master account tied to a bank, and a connection to one of the payment networks; Visa, MasterCard, AMEX or Discover). While they to take on a modicum of risk (chance that you may commit fraud) and expense (mailing you the card, configuration service, administration, etc.) this is not considered credit as there is no access to capital that is not your own.

If you are interested in building your credit, you should sign up for a credit card in addition to a business prepaid card as they serve different needs. The business prepaid card offers additional controls technology that many businesses find save them from losing money that they would otherwise lose when using other products, (such as cash, checks, credit cards and gift cards) that lack the sophisticated controls technology commonplace in the new world of business prepaid cards.

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I Have Bad Credit. Can I Qualify For A Business Prepaid Card?

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Question: I Have Bad Credit. Can I Qualify For A Business Prepaid Card?

Answer: Short answer. Yes.

 

Business Prepaid Cards are Self-funded – So, No Credit Is Extended

Because business prepaid cards are “prepaid” and they don’t extend any credit to you, card providers don’t run your credit. Remember, with business prepaid cards, you fund your cards with your OWN money by connecting your bank account, then transferring funds into your prepaid card Master account.  You then transfer funds to your business prepaid cards or set limits through which your cards access the funds in the Master account. Because no credit is extended by business prepaid card issuers, no credit check is required.  Additionally, prepaid business cards do not build your credit because of this same reason.

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Why Don’t Business Prepaid Cards Offer Rewards, Miles Or Cash Back?

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Control And Peace of Mind Has A Price

Great, you’ve decided that your business could benefit from implementing a business prepaid card program. Now, you have to decide which card is the best solution for your use case by comparing business prepaid cards offered by providers.

You take to this search as you do with any other credit card comparison search, but you notice one thing missing; rewards, miles and cash back incentives. Why is this? I mean, these payment cards are the same form factor, a swappable plastic card, and they use the same Visa and MasterCard platforms. So, how can they be lacking this feature?

How Business Prepaid Cards and Credit Cards are Similar

First, let’s talk about credit cards. Credit cards are generally free, and credit card providers earn revenue by one of a few ways, including annual fees (if any), monthly interest on the outstanding balance with rates as high as 29% or more, and fees, such as late fees, etc. But they earn most of their money from the “interchange” fee, which is about 3.5% that is shared by all service providers that participate in the transaction, including processor, card issuer, bank, etc.

Now, let’s look at business prepaid cards. First, like credit card companies, they earn most of their revenue from the interchange fee. Some charge monthly SaaS (Software as a Service) subscription fees, and since you load funds into the business prepaid card account, they hold your money and make a small percentage on the interest. Generally the business prepaid card company cannot actually hold your money because they are not a chartered banking institution, so you’ll always see a statement identifying their banking partner who actually handles all of the money, as required by federal law. So, on the surface it seems that business prepaid card issuers could offer the same type of rewards and incentives that credit card companies do. So, what gives?

Why Business Prepaid Cards are Different

Because business prepaid cards are a relatively new offering, and offer convenience, reporting, and levels of spending control previously unavailable to SMBs, they recognize the opportunity to charge a premium for this and forego offering any additional perks or incentives at this time. Now, as the business prepaid card market matures and more competitors enter the space, inevitably some will chose to give away some of their revenue in the form of offering rewards, miles and cash back. As anyone in business will tell you, this can lead to a “chase to the bottom” of giving away the farm by one overzealous competitor.But the market is currently populated with smart card issuers that recognize the value premium this tool delivers, and, at this time, offering rewards is not required.

Ask any business who has been using business prepaid cards and they will tell you that the money, time and hassle that they have saved by implementing a prepaid card program far exceeds the cost of the program and the absence of any rewards. Additionally, business owners generally chose not to use the business prepaid cards themselves, as they prefer to use their own business credit card or travel card and earn miles or rewards on all of their purchases.

So, why not earn more miles or rewards by having all of their employees use the same travel or rewards credit card? Ask any business owner who has experienced employee fraud or runaway unauthorized spending or theft on the business owner’s credit card account, and you will quickly see why most business owners feel that this is not worth the risk. Remember, it is generally the business owner who is liable for the entire credit limit accessible to all of the credit cards on their account. Even one incident could lead to hours spent trying to clean up the mess. Most SMB owner’s cannot qualify for a true business credit card, besides, most business credit card programs for small business owners are merely rebranded personal cards. In hindsight, the miles or rewards are not worth this kind of exposure to risk.

Conclusion: The Risk is Not Worth the Rewards

Businesses are quickly discovering the additional control, convenience, real-time reporting benefits that business prepaid cards offer save so much time and money that they are willing to pay a monthly fee for this type of solution. While credit cards could be free and offer rewards, the additional exposure to risk is not worth it for business owners who have experienced theft or loss, or those who prefer to avoid this possibility altogether. As the business prepaid market matures, some providers could offer incentives such as rewards, miles or cash back, but at this time none are doing this in their go-to-market pricing strategies.

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Two Types of Business Prepaid Cards – Which is Right for YOU?

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Comparing the Two Types of Business Prepaid Cards

Before you select a business prepaid card program for your SMB, nonprofit, or organization, you absolutely need to know about the two types of card structures. “You mean there is more than one type?” YES! And if you don’t know the difference, you may not be getting the level of control or hands-free convenience that you desire while saddling your admins with an unreasonable administrative burden. In this article, you are going to learn about the two different types of prepaid business cards, and you’ll know which option is the best for you and your organization.

The Origin of Prepaid Business Cards for Business

In the beginning, there were none; business owners were forced to assemble their own employee expense solution using cash, checks, employee credit cards, and store gift cards. Each point solution offers specific advantages, but none of them are undisputedly better than the rest across the board.

Savvy business owners then realized that they could repurpose consumer prepaid cards from drug stores as a means for controlling how much they gave to employees and even where these funds could be spent. While these consumer prepaid cards didn’t have mature spending controls, simply controlling the amount of funds that were “loaded” onto a card was a revolutionary leap ahead. Business owners were freed from the daily ritual of divvying up funds and employees no longer had to hound admins and managers for the funds they need to just do their job. Granted, this did require admins to make frequent trips to drug stores to purchase prepaid cards, and any remaining funds on the card disappeared and were accepted as a loss. This solution wasn’t perfect and owners appreciated this control anted up at the expense of employee productivity interruption and trivial financial loss, but it did solve the solution of controlling spending, and convenience.

Type: 1: The Birth of “Card Account” Business Prepaid Cards

In 2007, Pex card was born. This was the advent of the prepaid card for business. Connecting a bank account to your Pex account, business owners would transfer funds to their “master” Pex card account. They then could transfer a specific amount to each employee’s “card” account, which was accessible by each employee’s Pex card. Additionally, leveraging Merchant Category Controls (MCCs), business owners could enable certain merchant types for purchases. Now, these funds could only be spent for things like gas, hardware supplies or government services. This was the beginning of the business prepaid card, however, it was slow to catch on with skeptical small business owners who were still more comfortable with what they have been doing for years; using cash, checks, credit cards and store gift cards.

The feature that business owners gravitated towards, was the ability to transfer a different set amount of funds to each employee’s card. This concept means that each employee card has its own “card account.” If the employee doesn’t use all of the funds on that card, then business owners transfer the unused funds back to the master account.

Pros and Cons of “Card Account” Business Prepaid Cards

This card structure provides ultimate control as business owners transfer the exact dollar amount that each employee needs. If business owners and managers do not know the exact amount that an employee may need, then they transfer extra funds.

The downside of this type of card structure is that unused funds may be lingering on cards and therefore not accessible by other employees. If business owners are not judicious about cash flow and monitoring and managing funds, then the organization may not be putting all of their precious cash to use.

“Card Accounts” is the most popular type of business prepaid card type and many also-ran competitors have cropped up over the years, including: Dash, Emburse, Penny and more. Compare a list of all the “Card Account” products and see which one meets your needs.

Type II: An Evolutionary Shift – “Replenishing Limit” Business Prepaid Cards

Recognizing that cash flow is king, and any variance from fully leveraging all of the precious cash of an SMB is detrimental to its success, a new type of prepaid business card emerged that has all of the same types of spending controls (MCC, spending amount by period, etc.) but is structured quite differently with both pros and cons.

“Replenishing Limit” card accounts use a “master” account, similar to “card account” products, however, instead of each card having its own “card account,” all funds remain in the master account and each employee card accesses funds through “replenishing limits.”

Pros and Cons of “Replenishing Limit” Business Prepaid Cards

With this type of card structure, more of the business’ funds are being put to use. An example will better contrast the differences. Business “A” uses card accounts, and Business “B” uses a replenishing limit product. Both businesses have $100 in their master account and have two employees who need to each make purchases on behalf of their company.

Business “A” sets limits for Employee “A” to be $50, and employee “B” to $50, fully covering the $100 in the master account. Business “B” set’s limits for both employees “C” and “D” to be $100, not knowing which employee will need the funds, but giving both employees access to the full $100 amount in the master account.

Now, let’s say one employee needs to make a $25 purchase, and another employee needs to make a $75 purchase, which fully exhausts the $100 that each business has.

Scenario 1: With card accounts, the first employee with $50 in their card account, their purchase will go through successfully. And the second employee with the $50 in their card account, their $75 purchase will be declined. With this structure, the business owner retains ultimate control, but funds that could be working for the business may not be fully utilized. Additionally, the business owner will need to move back the unused funds to the master account and re-allocate these funds to another employee’s card account so that it can go to work for the business.

Scenario 2: Now let’s look at the same scenario but for replenishing limit card accounts. We have the same $25 and $75 purchases to make. Employee “C” has a $100 replenishing limit, so the purchase for $25 will go through successfully, and $25 will be deducted from the master account leaving $75. Employee “D” now makes a $75 purchase, which also goes through successfully. $75 is deducted from the master account leaving $0. All of the funds are utilized and working for the business. Each employee has full access to the entire amount in the master account, limited only by the limit set for each employee’s card. Now, if you have employees who spend more than they should, this solution may not be the right choice.

While Scenario 2 may seem like a “no-brainer” superior solution, as who wouldn’t want all funds working for the business, don’t be fooled it really depends on what your business requires; it’s really a trade-off between ultimate control (for card accounts) and reducing administrative burden (for replenishing limit accounts).

Conclusion: Two Great Solutions – One is Right For YOUR Business?

By now, you should fully understand the two different types of business prepaid card account structures. Each offers benefits as well as detriments. “Card account” products offer the ultimate control and make the most sense for businesses that know what each employee spends, and per diem use cases, but may not put all of the company’s money to work at the same time and come with a higher administrative burden. “Replenishing Limit” card accounts eliminate the recurring administrative burden and put more of your company’s money to work for the business at the expense of giving your employees access to more funds than they may need, which may reduce funds for other employees that need those funds more.

Which card structure is right for your business depends on how you manage cash flow, how much you trust your employees to only purchase what they should buy, and your comfort with the administrative burden. Start comparing business prepaid cards now!

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business prepaid cards versus store gift card

Compare: Business Prepaid Cards Versus Store Gift Cards

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Do Business Prepaid Cards Beat Store Gift Cards (i.e. Consumer Prepaid Cards) for Ultimate Control?

So far, business prepaid cards have held their own against incumbent challengers such as employee credit cardscash, and checks. In this final comparison article, we’ll pit the latest challenger, store gift cards (AKA consumer prepaid cards) against business prepaid cards to see how they stack up since both are essentially the same solution, but business prepaid cards come with additional technology stacked on top. You’ll really want to pay attention to this article. Let’s go!

The Pro’s Of Using Store Gift Cards – Convenience And You Only Risk What’s On The Card

Need to give employees a specific amount of money and don’t want to deal with cash, or checks and don’t have a credit card to share (or simply don’t want to?), then just run down to your local drugstore and pick up a consumer prepaid card.  They’re readily available and accepted everywhere, so let’s take a look at all of the benefits:

  • Readily available at any drugstore
  • Can put any exact amount loaded onto the card to control spending
  • Accepted everywhere since they swipe like a credit card and are backed by Visa or MasterCard
  • Can be purchased and used by managers, owners or employees
  • Certain store cards can only be used at that store providing additional control (e.g. Home Depot gift card)

The Cons Of Using Store Gift Cards – No Reporting, No Controls & Remaining Funds Disappear

Even though store gift cards are prepaid cards, and have been adopted as the latest advancement in employee spending solutions, they come with some drawbacks that business owners have just come to accept. It is clear that the benefits far outweighs the cons, but let’s just take a look at what artifacts this payment solution includes that still make it worthwhile over using cash, checks and employee credit cards:

  • High fees to purchase a card,  load funds, transactions, ATM withdrawals (if allowed)
  • Time-consuming as you must physically go to the drug store to purchase the card
  • Can’t control what is purchased with the prepaid cards (no spending controls)
  • Store-specific cards can’t be used at other stores if changes or emergencies arise
  • Remaining funds left on the cards are often kept by employees
  • No reporting – Must still save receipts and manually input for accounting

How Business Prepaid Cards (BPC) Improve Upon Consumer Prepaid Card (i.e. Store Gift Cards)

While business prepaid cards are essentially the same payment platform as store gift cards, they layer on additional technology that takes control, convenience and reporting to new levels.  Above store gift cards, BPC’s offer:

  • Spending controls by employee, dollar amount, day, week or month
  • Integration with smartphones, tablets, and desktops that allow you to set controls from anywhere, at any time
  • Real-time reporting so you can see transactions as they happen, and employees can attach receipts at the POS
  • Alerts that allow you to be informed when certain types of transactions occur
  • Spending categories limit the types of purchases that can be made with the cards
  • Simple exporting of data in .csv or integrations with accounting software, such as QuickBooks
  • Visibility – purchases are accounted for in real-time
  • Continually added new features, such as Tags, Notes, sub-accounts, administrators, and custom API integrations

Conclusion:

SMBs, nonprofits, and organizations have long been searching for an employee expense solution that offered control, reporting, and convenience, and have migrated from cash, checks, and employee credit cards to store gift cards.  However, each of these solutions has flaws and consumer prepaid cards have remedied some of these flaws, but do not offer an integrated solution that simplifies reporting, control or convenience.  Business prepaid cards raise the bar offered by store gift cards with innovative controls, integrated reporting, and real-time technology.  Clearly, business prepaid cards are the best offering yet for employee expense management, with new features being added all the time. Compare business prepaid card products and see why prepaid business cards are vastly superior to cash, checks, employee credit cards and store gift card for managing employee expenses.

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