Online stored Value Payment systems

Stored value systems are a form of electronic payment technology. They coexist with credit and debit technology and principally target the low value transactions. Online stored value systems have very low transaction cost. Stored value systems are based on creating a form of electronic value, for example on smart cards or as computer files. The value can be bought (withdrawn) anytime and spent in optional parts at a later date.)

History

In the first half of the 1990s online stored value systems were developed. In the beginning the usage of stored value systems was low and it was unclear whether and when they will play a relevant role in the payments system market.

Today “Stored Value Cards (SVC) are one of the most dynamic and fastest growing products in the financial industry”.

SVC as a type of business model are necessary for low value payments. In addition, SVC can only aggregate low value transaction cost-effective.

Examples of typical applications

Typical applications of stored value systems are Stored Value Cards (SVC). An SVC is a smart card with a microchip or a plastic card with a magnetic strip which registers the accounting balance. One leading difference between SVC and prepaid debit cards is that prepaid debit cards are usually issued in the name of the account holders. In contrast Stored Value Cards are usually anonymous. The notion “stored value” means the funds and data which is stored on the card.)

SVC are used as fare cards, telephone prepaid calling cards or for micropayment in shops and vending machines.

How Stored Value Cards work

It is necessary to differ between two types of Stored Value Cards:

Closed system prepaid cards

Closed system prepaid cards have substituted the traditional gift certificate and are known as merchant gift cards. “Closed system” means that the cards are only accepted at a single merchant. These cards are also referred to as “closed loop” or “single-purpose” cards. Purchasers buy a card for a fixed amount and can only use the card at the merchant that issues the card. The cards have often an expiration date or a service fee. In addition most closed system cards cannot be repaid in cash.

Open system prepaid cards

Open system prepaid cards have nothing in common with credit cards. The issuer doesn’t allow a credit to the cardholder. Stored Value Cards use magnetic stripe technology to store information about funds that have been prepaid to the card. The value is not physically stored on the card. With the aid of the card number it is possible to identify the record in a central database. These cards are similar to closed system prepaid cards but they are connected with a retail electronic payments network such as Visa, Visa Electron, MasterCard or Maestro. Different to gift cards they can be used anywhere where debit cards with the same logo are accepted. They are very similar to debit cards except that they don’t require a bank account and can be used to make debit transactions or to withdraw cash from ATM’s.