With a growing number of options and potential applications, the many advantages of using stored value cards (SVCs) far outweigh any potential disadvantages.

In addition to being a very useful way to pay for goods and services in advance, SVCs are a vital resource for unbanked consumers. Financial industry estimates put the number of households in the United States without a bank account at 10 to 15 percent of the market.

There are a number of reasons why some may not qualify for a bank account. Many low-income families cannot afford the monthly fees or potential overdrafts associated with low-balance checking accounts. Some consumers are also denied bank accounts due to poor credit or previous bank account closures due to bad checks or other issues.

With their ability to top up with funds, some SVCs can act as a virtual bank for unbanked consumers. As long as an SVC does not have additional fees to load funds or other related account maintenance fees, there should not be an associated risk of costly overdrafts or other excessive fees. All funds available on these feeess cards are valid and can be withdrawn at any time. However, some SVCs may not have all the fund protection features of most bank accounts.

There are also no currently established standards or legislation that specifically protect consumers using SVCs at the national level. The Fed is considering expanding its Regulation E, which protects consumers using electronic funds transfer (EFT) systems, to include protections for consumers using SVCs.

Some SVCs can be used to help rebuild credit for consumers with low credit scores. Several SVC issuing companies advertise these “credit building” features. These companies will report their card users’ positive account information to the three national credit bureaus. How much this can improve a consumer’s credit score has yet to be determined.

Other SVC perks include overdraft protection, which is now rolling out to a number of fee-based SVCs, and cash-advance capabilities, which will likely be a regular feature on many future cards.

Any business that processes employee payroll can also benefit from issuing SVCs in lieu of paychecks. Payroll processing cards can reduce a company’s payroll costs by up to 70-75 percent.

There are some potential fraud related issues that can result from the use of SVC. If your SVC is stolen and ID verification is not required to use the card, a thief could deplete the funds on your card before you know it. Since signatures or PIN numbers are commonly used in many newer SVCs, the chances of fraud occurring are decreasing. You can also have the funds attached to an SVC temporarily frozen if you lose a card and need to get a new one issued. Since most SVCs typically have fewer funds available than a credit or debit account, fraud losses are even less likely with SVCs.

As we continue our transition to a “cashless society”, SVCs will continue to play an important and growing role in the financial marketplace of the future.