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How to Become a Vendor for Prepaid Debit Cards
Prepaid debit cards, called stored value cards in the industry, are the fastest growing financial service sector, according to the Federal Reserve Bank of New York. They include gift cards, prepaid telephone cards, prepaid debit cards, and prepaid and refillable general use debit cards.
Decide who you will target with your marketing activities. Teenagers and college students are a good target market because they normally cannot qualify for credit cards and may not qualify for a checking account debit card, but they need a card to use for online purchases. Parents providing spending money for their children and people budgeting their purchases find these cards extremely helpful. Businesses employing a large number of laborers or foreign nationals are now using these cards to pay wages rather than distribute checks. Each of these types of users would require a different marketing approach so narrowing your target market will improve your chances of success.
Examine your business model including where you intend to locate your business and whether you will be selling out of a storefront to walk-in clientele or whether you will be calling on businesses to sell them the idea of using stored value cards for their payroll, incentive programs, and to control travel and entertainment expense. The costs of maintaining your store or office will have to be covered by the fees you will receive from selling these cards, so be careful to establish how much you will receive on the sale of each card and, if you intend to set up a store, make sure it is in a location that is likely to attract walk in business.
Contact issuers of stored value cards and compare their various programs. You will find significant differences in their support, vendor procedures, fees and liability provisions. Not all issuers are banks and not all stored value card programs are the same. Look at the offerings in local stores to see which are the most popular cards among vendors. Make a note of the issuers of those cards and contact as many as possible while doing your research.
Ask vendors of stored value cards for their advice and recommendations for good reliable issuer programs. If an issuer goes out of business all the cards that have been issued will likely be worthless and the people who bought cards from you will look to you for repayment, so you must make sure to do business with the most reliable and creditworthy issuer you can find. Experienced vendors will be able to warn you of pitfalls to avoid.
Research the liability issues you will encounter such as lost cards, transaction errors, faulty cards, merchant acceptance and the outlook for industry regulations. Make sure your issuer has policies that are beneficial to their vendors because unfavorable policies will directly impact your profits. The individual states have laws you will encounter such as escheat laws that govern how remaining balances may be treated on cards that have not been used for extended periods of time.
Select one issuer to work with and start out as small as possible. An attorney can help you fully understand any contracts or other documents you may be asked to sign. Take advantage of any training the issuer may offer and test the marketing programs till you understand the business and can evaluate their effectiveness.
You will have to choose a stored value card program manager or issuer to supply the cards for your distribution activities.
There has been a lot of controversy about stored value cards because they have been commonly used to launder money and facilitate illegal gambling. There have also been legal problems with some of the issuers, so make sure to do your due diligence prior to signing any contracts or paying any money.
Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.