Prepaid card transfers: how they work in Canada

What a prepaid card transfer is

A prepaid card transfer is any movement of money onto, off, or between prepaid card balances. Prepaid cards hold funds you load in advance, so the balance is stored value rather than borrowed credit. A transfer can be a load, a refund, a cash withdrawal, or a payment sent from one card balance to another.

The term covers two directions. Inbound transfers add value, such as a payroll deposit, a bank transfer, or cash loaded at a retail agent. Outbound transfers remove value, such as spending at a merchant, withdrawing cash where the card allows it, or sending funds to another person. The cardholder agreement sets which directions are permitted.

Most prepaid cards issued in Canada are run as programs by a financial institution or a licensed money services business. The balance sits with the issuer, not in a bank account held in your name. That difference affects how the money is protected, taxed, and recovered if a program runs into trouble.

Where the word remittance comes from

In accounting and payroll, remittance means sending money to settle an amount owed. A Canadian employer remits payroll deductions to the Canada Revenue Agency. A business remits collected sales tax. A contractor remits payment on an invoice. In personal finance, remittance usually means sending money to family or a household in another country.

A payment is money exchanged for goods or services. A transfer is a movement of funds between accounts, cards, or people. A prepaid card transfer is simply a transfer where a prepaid card balance sits on one side. Loading wages onto a payroll card is both a wage remittance and a card transfer.

How money gets onto and off a card

Loading methods vary by card and by issuer. Common options include cash at a participating retail location, a transfer from a bank account, a payroll deposit from an employer, and a transfer from another prepaid card. Some programs also accept deposits arranged through a bank branch.

Removing money works differently. Some cards allow cash withdrawals at an automated banking machine up to a daily limit. Others allow a transfer back to a bank account. Many general-purpose cards let you spend the balance but never cash it out, and single-load gift cards usually cannot be emptied at all.

Timing also varies. A payroll load may appear on payday, while a bank-to-card transfer can take one to several business days depending on the payment rail used. The card's terms of use state when loaded funds become available for spending.

• Cash loaded at a retail agent
• Transfer from a bank account
• Payroll deposit from an employer
• Transfer from another prepaid card
• Cash withdrawal where the card allows it

Types of prepaid cards used in Canada

Closed-loop cards work at one retailer or a small group of retailers and are usually loaded once. General-purpose reloadable cards carry a payment network logo and can be used wherever that network is accepted, and they can be reloaded repeatedly.

Payroll cards are loaded by an employer to pay wages, often for workers without a bank account or on short-term contracts. Travel cards are preloaded in a foreign currency so that spending abroad draws on that currency balance rather than converting each purchase.

Prepaid card transfers across borders

Sending money to another country from a prepaid card is an international money transfer. The provider converts your Canadian dollars into the destination currency, and the rate applied includes a margin above the wholesale market rate. That margin is not always shown separately from the stated fee.

The Bank of Canada publishes daily reference exchange rates for a range of currencies. Comparing the rate you are offered against that benchmark gives a rough sense of the conversion cost, though the published rate is not one any consumer can actually buy at.

Receiving money onto a card from abroad works in reverse. Amounts may be held in Canadian dollars or in a foreign currency, and any conversion happens at the issuer's rate. A card that holds a foreign currency balance is not the same as a Canadian dollar card used overseas.

Rules, registration and protections

Businesses that transmit money must register with FINTRAC as money services businesses. Registration carries obligations: verifying client identity, keeping records, and reporting certain transactions. You can check whether a provider appears on the public registry before you use it.

Banks and other federally regulated financial institutions fall under federal supervision. A prepaid card program, however, may be run by a bank, a credit union, or a registered money services business, so the level of oversight depends on who issues the card.

Prepaid card balances are generally not deposit accounts. That means the protections attached to bank deposits do not automatically apply. Read the cardholder agreement to see what happens if the program closes, the card is lost, or a transfer is disputed.

Fees, fraud and common confusions

Costs vary widely between programs. They can include an activation or purchase fee, a load fee, a monthly fee, cash withdrawal fees, a foreign exchange margin, and an inactivity fee. Some cards charge nothing for routine use and earn revenue from merchant interchange instead.

Prepaid cards attract fraud because card-to-card transfers are difficult to reverse. Recurring patterns include fake job offers that ask you to receive money and forward it, requests to load a card for someone you met online, and calls claiming your card has been frozen. Report suspected fraud to the Canadian Anti-Fraud Centre.

People often confuse prepaid cards with debit and credit cards. A debit card draws on a bank account, a credit card borrows money, and a prepaid card spends a loaded balance. People also assume any transfer means an international remittance, when in payroll and accounting the word usually means remitting money owed.