Credit, debit, and prepaid: learn about each card and their benefits

It is practically impossible to imagine modern life without cards. Whether it is the classic credit and debit cards you use on the POS, prepaid and benefit options, or even virtual cards that you can use directly on your computer or cellphone. Payment methods are continuously evolving with new types of cards, technologies, and business models.

Due to the various options available today, it is common to wonder what the differences are between them, and that is what we are going to show in this article! Just keep reading to understand the main types of cards offered by banks and financial institutions, including how each one works and their differences.

The types of cards offered in the market

Whether through banks, fintechs, and other companies authorized as financial institutions, three main types of cards are offered:

• Credit;
• Debit;
• Prepaid (including benefit cards).

Virtual, physical, corporate, benefit... How is all this divided?

Although the three main modalities (credit, debit, and prepaid) are the foundation of the card market, each business model can offer different interesting possibilities for those who want to offer their own cards to their customers.

Payment cards can be classified in various ways, such as according to their specifications:

By usage environment:

• Physical cards: The well-known cards that you use to buy in physical stores, but which can also be used for online purchases;
• Virtual cards: Used solely in the digital environment. That is, they are for online purchases. Some institutions offering them even allow the end customer to delete and create a new virtual card at any time for security reasons.

By scope:

• Domestic: These are cards with more limited use: with coverage only within the national territory;
• International: They can be used outside the national territory and often offer higher limits, in the case of credit cards, and benefits for frequent consumers;

By client type:

• Individual card: These are issued by a bank, fintech or payment company, financing the expenses of any individual;
• Corporate card: This is linked to the bank accounts of a company, entity, or public service organization, which employees use for work purposes;
• Benefits: Banks and financial institutions also issue cards like food coupons, dining, and other benefits, which are generally prepaid and branded (like Visa or Mastercard).

In the case of issuers that are not originally banks, the popularization of banking as a service has made the concept of white label increasingly common, that is, the branded card, personalized and mainly used by fintechs and companies offering financial products and digital accounts to customers and partners.

What is the difference between debit and credit?

"Credit or debit?" The most well-known types of cards on the market have in common:

• The fact that they use the infrastructure and services of brands to be accepted anywhere;
• The possibility of being national or international; virtual or physical; and they also serve different uses, such as for individuals or corporations.
• Apart from that, what remains are clear differences in each one's business model.

How the debit card works

The debit card is the main modality used among cards at the regional level, and not without reason. It acts as a substitute for cash, since whatever you purchase with this card is directly debited from the current account it is associated with. You paid, it was deducted!

With the debit card, ATMs can also be used to make withdrawals, deposits, transfers, and payments from the account holder, among other things. In case of insufficient funds, a purchase can be declined or lead the cardholder to the bank overdraft (if enabled).

How the credit card works

For many, it's something obvious, but it's worth specifying. The credit card allows you to purchase (or withdraw values) today, and pay after the closing of your statement, which usually covers one month. Despite the convenience, in many cases, it comes with the payment of an annual fee for the services, depending on who the issuer is, or with commissions.

The credit card functions like a loan, based on the pre-established credit limit, according to details such as the customer's reliability as a payer, in addition to a good relationship with the issuing bank. With credit, there is an incidence of interest on installment purchases, overdrafts, and any delay in bill payments. On the other hand, consumers who spend more on credit often have privileged access to benefit programs like miles, VIP services, and discounts.

What is a prepaid card?

Functioning similarly to a debit card, the prepaid card is used by deducting at the moment what you consume. However, the big difference is that it has a predetermined balance, similar to when you load prepaid balance on a cell phone or a transportation card.

Prepaid cards usually have some common uses, where what you load as balance is what you can consume:

• International travel cards, where you load dollars, euros, or the currency you will use in a particular country;
• Cards that function as a "monthly allowance" from parents to children, with control over the given amounts;
• Alternative to debit/credit cards without having a bank behind them.
• The benefit cards provided by companies also act as prepaid, even if both use the usual credit card networks, such as Mastercard and Visa. In their case, they are often also enabled for use in the credit function, even if the amount is deducted like a debit card. This also allows them to be used for online purchases and services.

Issuing your own cards is now a reality for any company

In recent years, technology has been evolving very quickly, and today any company can offer its own cards. All this is thanks to the technological solutions associated with the embedded finance model and so-called banking as a service.

That is, those who want to issue cards, whether national or international, physical or virtual, individual or corporate, can simply join a technology partner for this or develop them internally with their own team. Understanding which of the two solutions is best for your business model and structure is crucial. With all this, you can act like a fintech, quickly offering your own cards, bank accounts, and other financial services like credit and loans.

This market revolution brings many possibilities, not just the convenience of eliminating intermediaries (such as banks, which were previously needed to pay suppliers, employees, or customers). Some of the advantages of having your own financial services include securing additional sources of income with the fees charged, as well as boosting the business with benefits programs, discounts, and cashback, attracting, retaining, and building user loyalty. Don't miss out!