Prepaid cards are a popular method for handling money, but they’re also subject to misuse. With growing regulations for these cards, Know Your Customer (KYC) and technological developments are critical to card issuers’ safety and reputation.
Regulations for Prepaid Cards
As the world moves away from cash payments for the convenience of credit cards, prepaid cards have gained popularity. These prepaid cards have a set amount connected to them, but this money has no affiliation with a bank account. These cards can have renewable funds for any location or act as single-use payment methods at a particular chain or store.
With the rise of prepaid cards, money laundering has become a growing concern. Drug traffickers often use these cards to conceal drug money and continue funneling cash into their operation, going virtually undetected. Since this discovery, Anti-Money Laundering (AML) regulations now exist, requiring identification checks to ensure prepaid card users have good intentions.
The Importance of KYC
Know Your Customer regulations exist under AML to ensure a user’s suitability before loading or activating a prepaid card. In Europe, the Fifth Anti-Money Laundering Directive (AMLD5) requires KYC checks at a threshold of 150 euros. If a user wants to load a card with 150 euros or more, issuers must receive an identity check first.
Various associations related to prepaid cards compile red flags for AML practices. With KYC checks, providers can note unusual or suspicious characteristics, such as:
- An excessive number of prepaid cards
- Discrepancies in identification
- Multiple bank accounts
- Unexplainable transactions
When providers see suspicious activity, they can deny access to a prepaid card or avoid activation. AML and KYC regulations give issuers the opportunity to prevent money laundering.
Virtual Identity Checks for Prepaid Cards
As AML and KYC become standard practices, technology is playing a valuable role. Performing in-person identity checks for every user at a card request can be tedious. Even with in-person verification, the process is still subject to collusion and ID tampering. With the introduction of prepaid card apps and web platforms, identification is easier than ever.
These apps require users to handle identity checks themselves in order to activate their cards. With this streamlined system, card issuers can catalog users and their information. Platform providers will often include risk assessment scores, generate reports for the appropriate authorities, and keep a history of users’ activity.
Prepaid card platforms also keep card issuers connected to program managers. With clear security and identity checks, program managers can trust their issuers, and issuers can encourage more activity.
Other virtual identity checks for KYC could include biometric face identification, fingerprint scans, and voice recognition. As we collectively move our processes to digital platforms, these technologies are improving, and KYC practices are becoming more efficient.
Turn to Hydrogen for Secure Prepaid Cards
Hydrogen supports financial institutes with secure prepaid cards and identification management. With configurable apps and comprehensive analytics, you can feel informed about your prepaid card distribution for every customer. Request access to our services today.