Prepaid Cards: A Case Study of Japan, the United States and the European Union

Prepaid cards have a relatively long history compared to other Fintech products. Over the last half a century, prepaid cards have been issued as telephone cards, cards substituting for subway tickets, etc. Prepaid cards may broadly cover cards through which value is stored, and for which the holder has paid the issuer in advance. While this concept of prepaid cards is broader than IADI's definition of e-money, it is essential to note that respective jurisdictions/regions may have their own definitions, scope and/or concepts of e-money and/or prepaid cards. The objective of this brief is to present a case study in Japan on prepaid payment instruments stipulated in the Payment Services Act. The brief also looks into prepaid-type payment instruments issued under the legal frameworks of the U.S. and the EU. Prepaid cards have evolved together with their legal frameworks in the respective jurisdictions/regions. Differences among jurisdictions/regions are observed not only in their legal frameworks for prepaid cards, but also in the scope and concepts, similarities to deposits, impacts on depositors, functions and risks of issuing institutions, and other relevant elements concerning prepaid cards. It can be said that there is no single approach that could be applied universally for supervision and protection of prepaid cards, nor for the appropriate relationships with deposit insurance. Respective jurisdictions/regions have been developing their own approaches as appropriate in accordance with their legal frameworks and other relevant elements, including social needs. It is considered essential that a one-size-fits-all approach is not taken in considering measures for supervising and protecting prepaid cards and their appropriate relationships with deposit insurance. With all of the variations in the treatment of prepaid cards, one should begin by understanding the legal frameworks in the respective jurisdiction/regions, including their development stages and historical backgrounds, and then carefully analyse and sort out relevant elements of prepaid cards. It may also be useful to apply this approach in assessing new Fintech products that may be developed in the future.