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What is a stored value card (SVC)?
A stored value card, or gift card, is a type of electronic banking debit card. Stored Value Cards have a specific dollar value preloaded. Credit card networks, bank card issuers and retail merchants provide these cards as a means of providing non-cash payment cards to the public for a variety of purposes. Cards issued by card networks (such as a Visa gift card) can be used anywhere general-purpose credit cards are accepted. Cards issued by merchants can only be used for goods and services from those specific retailers.
Key points to remember
- In-store value cards, better known as gift cards, work like debit cards specific to a certain retailer or set of retailers.
- There are two main types of stored value cards: closed loop cards and open loop cards.
- While closed loop cards can only be prepaid and used once, open loop cards can be reloaded with funds and used continuously.
How stored value cards work
Stored value cards fall into two main categories. Closed-loop cards have a single limit, such as Visa, Mastercard, and American Express gift cards, merchant gift cards, and prepaid phone cards. Open-loop cardholders, on the other hand, can top them up with funds and use them again.
Stored value card or debit card
A stored value card differs from a bank debit card in that a debit card does not have a specific monetary value preloaded. Rather, it is a payment card that withdraws money directly from a consumer’s checking account when making a purchase. In this regard, its value is directly correlated to the value of the attached current account.
Some banks offer debit card customers the option of discovered protection. While there is usually a limit on the amount of overdraft protection, if a person’s checking account balance is at zero and overdraft protection is in place, the banking institution will cover the transactions. up to the maximum amount of overdraft protection.
Generally, any transaction amount that exceeds the maximum overdraft protection will be subject to high institutional fees. The same types of fees will apply to transactions that are not covered by overdraft protection, which is a costly mistake for consumers using their cards with an account balance of zero. Additionally, many banks place limits on how much and how often consumers can withdraw using their debit cards.
Stored value card or credit card
A credit card can also be used to make purchases in person at a store, over the phone, or online. Unlike a debit card or stored value card, however, a credit card allows the user to maintain a balance. In exchange for this privilege of using the loaned funds, users often pay interest on an existing balance. Credit cards, which are unsecured loans, can charge higher interest rates than other personal loans, such as auto loans, home equity loans, student loans, and mortgages (although rates are generally less than payday loans).
Unlike closed loop stored value cards, credit card loans are indefinite. A user can borrow multiple times as long as it stays below their credit limit and pays at least the minimum amount due on or before the billing due date.
