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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