Is Step a Prepaid Card or a Bank Account?

Step is a financial technology company known for its banking solutions tailored for younger generations. Many wonder if it functions as a prepaid card or a traditional bank account, given its unique blend of financial product features.

Understanding Prepaid Cards

A prepaid card allows users to spend money loaded onto it in advance. It functions similarly to a gift card, with spending limited by the deposited funds. Unlike a traditional debit card, a prepaid card is typically not linked to a checking account; funds are held directly on the card itself rather than in a bank account. This allows individuals without a traditional bank account to make electronic purchases and manage their spending.

Prepaid cards are often chosen for budgeting purposes, as they prevent overspending by limiting purchases to the available balance. They can be reloaded with additional funds through various methods, such as direct deposit or cash deposits at retail locations. A significant limitation of most prepaid cards is their inability to help build a credit history, as they do not report payment activity to credit bureaus. Users may also incur various fees for loading, using, or maintaining prepaid cards.

How Step Accounts Work

Step provides an integrated financial platform that includes a bank account and a linked Visa card. Its banking services are provided through Evolve Bank & Trust, a Member FDIC institution. Users can fund their accounts through various means, including direct deposit, which allows access to paychecks up to two days early.

The Step Visa card functions as a secured card, but it behaves much like a debit card in daily use, as it only allows spending up to the amount available in the account. A unique feature of Step is its “Smart Pay” system, which facilitates credit building without the risk of debt. Payments made with the Step card are automatically settled from the account balance, and this activity is reported to major credit bureaus like Experian, Equifax, and TransUnion. This enables users, including those as young as 13 with parental sponsorship, to establish a positive credit history.

Classifying Step

Step operates as a bank account with a linked debit card, fundamentally differing from prepaid cards due to its underlying financial structure and credit-building capabilities. Step’s connection to an FDIC-insured banking partner provides a level of security and functionality not typically found with prepaid cards. Unlike most prepaid cards, Step actively reports payment history to credit bureaus, allowing users to build a credit score.

The ability to establish credit history, even for young users, distinguishes Step from a simple prepaid card. Step also offers features such as direct deposit, spending tracking, and access to a network of fee-free ATMs, which are common with traditional bank accounts. Therefore, Step functions as a digital banking solution designed to provide financial literacy and credit-building opportunities, operating as a full-fledged bank account with a debit card, rather than a limited prepaid card.