Mitigating Risks in Prepaid Card Business - All you need to know!!!

The tremendous growth in the prepaid card business, not only attract customers from all sort of backgrounds but also expose it to various risks. Secrecy and bank-less transactions are amongst the main attractors that give prepaid cards the potential to cover a wide range of customers including the members that belong to the unbanked sector.

The known risks in the prepaid card market are similar to those that affect other financial payment methods such as cash and cheque transactions as well as credit and debit cards. Money laundering and prepaid card frauds are the major risks associated with the use of prepaid cards.

  1. Money Laundering- It is a measure of taking illegal money and moving it through a genuine financial system to disguise its illegitimate nature and origin.
  2. Prepaid Card Fraud- It is a measure of using the stolen prepaid cards and accounts for purchasing goods and services, altering data on prepaid cards, skimming and forging on prepaid cards, and malicious threats involving internal co-conspirators.

To minimize and deter the consequences and likelihood of both the risks, some necessary measures must be adopted and applied in the business. Prepaid card issuers must use the preliminary tools for assisting them in maintaining and implementing a reliable, secure and trusted environment for prepaid cards. With the emergence of new methods of prepaid card fraud, just detection alone is not enough for resolving the threat of fraud. To lessen and discourage forging and skimming transactions, the prepaid card design must include some preventive elements. For example, the prepaid open-loop VISA branded prepaid card has a 3D Dove hologram and a PIN security code for withdrawals from ATM.

The following strategies for mitigating the risk of money laundering and prepaid card fraud in the prepaid card business should be incorporated:-

  • The customers' registration must be enforced, on the basis of usage and monetary value of the prepaid card especially for open-loop prepaid cards. The registration must include information related to the customer's background such as name and occupation.
  • Some common patterns and relevant information related to money laundering and prepaid card fraud such as the identified culprits and their usage patterns must be shared with the prepaid card issuers. This should be done in real-time as it might help in identifying and preventing any attempts of money laundering or prepaid card fraud immediately.
  • Preventive elements such as signature and holographic magnetic stripe should be used on prepaid cards too.

For facilitating the growth of prepaid card issuers, they should consider the above risk mitigation strategies for reducing the two major risks of preapid card fraud and money laundering. Prepaid Card fraud causes a direct impact on profits of prepaid card issuers, whereas money laundering is dictated more by the laws and regulations set by the Government.