E. Prepaid Cards

• Author: M.H. Ogilvie
• Profession: LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
• Pages: 361-363

Page 361

Despite the apparent demise of the smart card in North America at the end of the twentieth century, somewhat similar payment products have appeared since in the form of prepaid cards, some of which connect with the banking system and are loaded with economic value. The earliest were prepaid telephone cards, which appeared in the 1980s, followed by retailer electronic gift cards purchased with the value of the gift in the mid-1990s. These are known as "closed-loop" cards because they can be used only at the retail outlets that sell them and are limited in use to the value of the card. These cards are processed internally, unlike the newer "open-loop" cards, which are branded by a payment card network, such as the prepaid Visa or MasterCard branded cards, which can be redeemed at any retailer that is part of the Visa or Master-

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Card network. Some of these cards also permit cash withdrawals from ABMs in those networks, so that the transactions enter the clearing and settlement system with bank involvement.

Most of these stored-value cards use chip technology to store the value and to permit it to be read and transferred at specialized merchant terminals; that value is funded by cash payment or credit card or debit card payment, and some cards are reusable once reloaded with value. In addition to the original gift card, a variety of other purposes are now filled by various card providers, which use neither banks nor other deposit-taking financial institutions as part of the payment process other than to clear and settle. Some examples include: (i) "Taxi Dollars,"⁴²used to pay taxi fares; (ii) various transit system fare cards; (iii) "Dexit,"⁴³ used in Toronto and expected to be rolled out elsewhere to make small purchases or micropayments by means of a prepaid key tag that transfers value via a low-frequency radio signal when held near a merchant terminal followed by electronic transfer of funds from Dexit’s account to the merchant’s bank account; (iv) "speedpass" (Imperial Oil) and "easy PAY" (Shell Canada Ltd.),⁴⁴used to purchase fuel by means of a card which also uses low-frequency radio signals to transfer value but which accesses the holder’s credit card to pay for the purchase; (v) various passes to pay for travel on toll highways, for which low-frequency radio signals are picked up from a transponder in a car to facilitate payment of the toll from a credit card or a bank account; and (vi) payroll cards.

Although not...