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.