A Research and Markets report found that the prepaid card market in the United States is expected to increase from $542.26 billion in 2022 to $826.96 billion by 2026.

Today, prepaid debit cards are accepted as a form of payment in the travel industry, real estate market, and other businesses.

What makes these cards so popular? They offer the convenience of a debit card without being tied to a traditional checking account.

If you’d rather have a purchase denied than pay another penalty fee, the card can help you avoid racking up debt.

But there can be downsides to prepaid debit cards.

Before you get one, it’s important to understand how they work and what it’ll cost you to use them.

This guide covers:

  • What a prepaid business debit card is
  • Five benefits of using a prepaid business debit card
  • Drawbacks of prepaid business debit cards

What Is a Prepaid Business Debit Card?

paying with credit card
Source: Pexels

A prepaid business debit card allows you to make purchases or payments.

Unlike traditional debit cards, which draw funds for payments from an associated checking account, a prepaid business debit card requires you to load money in advance onto the card before using it.

If you need to manage employee spending but lack strong enough credit to qualify for a business credit card, consider getting a prepaid business debit card.

The cards are available from financial services organizations such as your local bank or credit card company. Some retailers like Walmart also let you apply for and preload your prepaid business debit card in-store. Alternatively, you can apply online through different websites that offer the cards.

Loading money onto your prepaid business debit card is fairly easy. You can use a variety of methods, including:

  • Direct deposit
  • Reload at a retail location
  • Mobile check deposit
  • Purchase a reload pack to add money to your card
  • Transfer from your savings or checking accounts

When you need to check your account balance, you can do it over the phone, online, or via your card issuer’s mobile app.

What Benefits Can You Get From Using a Prepaid Business Debit Card?

  • It’s easier and safer to carry than cash
  • It offers an extra layer of security
  • It can serve as a budgeting tool
  • It doesn’t hurt your credit
  • You can bank without opening an account

Prepaid business debit cards can be a key financial tool for your business.

Tack on the convenience it adds to your business ― no credit checks, low fees, and the ability to manage overspending ― and you have solid reasons for getting one.

Here’s a look at how using a prepaid business debit card can benefit you.

It’s Easier and Safer To Carry Than Cash

If you don’t want to carry cash, a single card is a more convenient and safer alternative.

It Offers an Extra Layer of Security

In the unfortunate event that someone steals your prepaid business debit card, they can only access the balance on the card, not your bank account.

It may be easy to use, but the thief cannot overdraw your account as they would with a debit card.

It Can Serve as a Budgeting Tool

A prepaid business debit card allows you to spend the money you load on it ― nothing more. So, it can help you limit you or your employees’ discretionary spending because you cannot overspend or incur overdraft fees as with traditional debit cards.

For example, Bento for Business lets you limit your employees’ transactions by personalizing their debit cards’ purposes.

It Doesn’t Hurt Your Credit

Prepaid cards don’t usually require credit checks to purchase. You’re not borrowing from the card issuer ― you’re accessing the money you put on your card balance. It’s a helpful short-term alternative to using a credit card that won’t impact your credit score.

You Can Bank Without Opening an Account

A prepaid business debit card allows you to perform some banking functions or make purchases online without needing a checking account.

Drawbacks of Prepaid Business Debit Card

  • Some prepaid debit cards charge significant fees
  • You’re limited to spend the amount you load onto the card
  • You can’t establish or build a credit history
  • Prepaid debit cards have fewer protections

In certain situations, it may make sense to use a prepaid business debit card. For example, if you don’t want the temptation of using credit or you don’t have a checking account.

However, there can be downsides to using a prepaid debit card.

Some Prepaid Debit Cards Charge Significant Fees

Prepaid debit cards have varying fees associated with different actions.

You may be charged fees to:

  • Withdraw cash
  • Make purchases
  • Reload your card
  • Check card balances
  • Speak with customer service
  • Make foreign transactions
  • Use the card monthly
  • Inactivity fees for not using the card

You’re Limited To Spend the Amount You Load Onto the Card

old man looking at his phone and card
Source: Pexels

To use a prepaid debit card, you need to load funds onto it. The money isn’t a security deposit; it’s spending money.

Once the funds run out, you can’t use the card again, unless it has overdraft protection.

You Can’t Establish or Build a Credit History

Unlike traditional debit and credit cards, which are primarily for building credit rather than spending, prepaid debit cards work well for convenience and budgeting.

They’re also good for instilling good spending habits, especially if you don’t trust yourself with credit cards.

However, prepaid cards don’t affect your credit history. You’re not borrowing money and there’s no related line of credit. Plus, your activity isn’t registered or reported to any credit reporting agency, so it won’t impact your credit score.

Prepaid Debit Cards Have Fewer Protections

Your typical credit and debit cards have some built-in fraud protection, which makes it easy for you to recover stolen funds.

Prepaid business debit cards offer some extra privacy protections in case of theft. And while the government has taken steps to offer a pathway to reimbursement and other legal rights for prepaid cardholders, these measures may not match those of traditional debit or credit cards.

To get assistance from the card provider, you may need to register your card. Plus, you have to be within the time limit for disputing charges for your case to be heard. Otherwise, you may be considered responsible for the charges even if fraud was involved.

What To Do Next

Prepaid business debit cards can be a useful financial tool, but the significant fees and fewer protections they offer can make them less desirable than traditional bank accounts or debit cards.

If you’re currently unbanked or you don’t have a solid, consistent credit history, try these alternatives:

  • Secured credit card: It works like a prepaid card but has lower fees. You deposit money with the bank, which you can spend, and establish a credit history.
  • Money order: If you’re making a one-time purchase, consider using a money order. Fees are typically lower than prepaid business debit cards, and you can send up to $1,000 prepaid.
  • Second-chance checking account: If you have a less-than-perfect banking history, past overdraft fees, or your bank has closed your traditional account, a second-chance checking account can help you access debit cards and checks while building a better banking history.