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Stored-Value Cards

Stored value cards are one of the most dynamic and fastest growing products in the financial industry. Anyone who makes purchases with a merchant gift card, places phone calls with a prepaid telephone card, or buys goods or services with a prepaid debit card is using a stored value card. 

Today, most people carry a number of plastic cards -credit cards, debit cards, charge cards, driver's license, health insurance card, employee or student identification card and others. One solution that can reduce all those cards to a single plastic card is called a stored-value card. 

A stored-value card can be an elaborate smart card with a microchip or plastic card with a magnetic strip that records the currency balance. The main difference is that a smart card can be store larger amounts of information and includes a processor chip on the card. The card readers needed for smart cards are different, too. 

Common stored-value cards include prepaid phone, copy, subway, and bus cards. Many people use the terms "stored-value card" and "smart card" interchangeably.

Magnetic Strip Card 

A magnetic stripe card is a plastic card which has a magnetic stripe on it. Different kinds of information can be stored on the magnetic stripe. Such stripes are usually made of small particles of iron (or another metal). Information is stored by changing the magnetism of the particles. 

A magnetic stripe card is a type of card capable of storing data by modifying the magnetism of tiny iron-based magnetic particles on a band of magnetic material on the card. The magnetic stripe, sometimes called a magstripe, is read by physical contact and swiping past a reading head.


Smart Cards
Smart cards, also called stored value cards, use magnetic stripe technology or Integrated Circuit (IC) chips to store customer-specific information, including electronic money. Smart Cards Smart cards can be used to purchase goods or service, store information, control access to accounts, and perform many other functions. 

Smart cards offer clear benefits to both merchants and consumers. They reduce cash-handling expenses and losses caused by fraud, expedite customer transactions at the checkout counter, and enhance consumer convenience and safety. 

In addition, many state and federal governments are considering stored value cards as an efficient option for dispersing government entitlements. Other private sector institutions market stored value products to transit riders, university students, telephone customers, vending customers, and retail customers.

Types of Smart Cards 

Smart cards are basically of two types: relationship based smart cards and electronic purses. 
1) Relationship-Based Smart Cards: Relationship-Based Smart Cards are chip based cards that store cardholder information including name, personal shopping preferences and actual purchase records that will help alter mass marketing techniques to address each individual's financial and personal requirements. Merchants can now accurately track consumer behavior and develop promotional programs designed to increase shopper's loyalty.
 
The benefits of smart cards rely on the devices called smart card readers that communicate with the chip on a smart card. In addition to reading and writing to smart cards, these devices can support a variety of key management methods. The card readers could be in the form of a two line character display that shows both a prompt and response entered by the user. Card readers in the form of screen phones are also becoming prominent where the phone prompts the users through transactions using menus patterned after those found on automated teller machines.

2) Electronic Purses: Although relationship-based cards are highly flexible, they are credit based and settlement occurs at the end of a billing cycle. There still remains a need for a financially instruments to replaced cash. This particular need can be met by electronic purses which are wallet sized cards embedded with programmable microchips that store sums of money for customers instead of cash for all their purchases.
 
The purse is loaded with money at an ATM, or through the use inexpensive special phone. This card can then be used to pay for any purchase at the store that is equipped with a card reader. In fact it can also be used on a vending machine where the vending machine verifies that the authenticity of the card and checks to see if there is enough money for the purchase. The value of the purchase is deducted from the balance on the card and added to an e-cash box in the vending machine. The receipts can be collected periodically and transferred to a bank account. an

Advantages of Smart Cards 
1) More Secure: These cards use encryption and authentication technology which is more secure than previous methods associated with payment cards. The microprocessor chip embedded at the heart of the smart card requires contact to the card reader and certain areas of the chip can be programmed for specific industries.
 
2) Safe to Transport: These cards give the holder freedom to carry large sums of money around without feeling anxious about having the money stolen. In this regard, they are also safe because the cards can be easily replaced, and the person would have to know the pin number to access its stored value. This takes care of the problem with cash; once it is stolen it is nearly impossible to trace and recover it.
 
3) Double as an ID Card: The advantage of using a smart card is that they can provide complete identification in certain industries. There are numerous benefits of using smart cards for identification. A driver's license that has been created using smart card technology can give the police the ability to quickly identify someone whose been stopped for speeding or reckless driving. These cards can be used by health professionals to identify someone who is brought in by an ambulance but unconscious or unable to speak.

4) Prevents Fraud: Some countries are using the smart cards to identify temporary workers who have been given work permits. This has the potential to reduce immigration fraud.
 
Disadvantages of Smart Cards
 
1) Easily Lost: Like a credit card, smart cards are small, lightweight and can be easily lost if the person is irresponsible. Unlike credit cards, smart cards can have multiple uses and so the loss may be much more inconvenient.
 
2) Security: They are more secure than swipe cards. However, they are not as secure as some in the general public would believe. This creates a false sense of security and someone might not be as diligent as protecting their card and the details it holds.
 
3) Slow Adoption: If used as a payment card, not every store or restaurant will have the hardware necessary to use these cards. One of the reasons for this is since the technology is more secure, it is also more expensive to produce and use. Therefore, some stores may charge a basic minimum fee for using smart cards for payment, rather than cash.


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