Prepaid refers to services paid for in advance. Examples include tolls, pay as you go cell phones, and stored-value cards such as gift cards and preloaded credit cards. Prepaid accounts are assets, and they are increased by debiting the account(s).

Prepaid services and goods are sometimes targeted to marginal customers by retailers. Prepaid options can have substantial cost reductions over postpaid counterparts because they allow customers to monitor and budget usage in advance.

Unlike postpaid or contract based services, prepaid accounts can be obtained with cash. As a result, they can be established by people who have minimal identification or poor credit ratings. Minors, immigrants, students, defaulters, and those on low incomes are typical prepaid customers.

Prepaid mobile phones

Recent statistics (OECD Communications Outlook 2005) indicate that 40% of the total mobile phone market in the OECD region consists of prepaid accounts. This service was invented by Portuguese provider TMN, while researching for a means to increase penetration of mobile technology by allowing anyone to buy a fully working (usually requiring a quick and simple activation process) mobile phone on any supermarket or electronics store. By removing the complications inherent to the contract system, this allowed the mobile communications user base to grow incredibly fast. In many countries this type of service became the predominant one, shortly after introduction, by providing both consumers and service providers with considerable advantages over the traditional method. In some countries, such as Italy or Mexico, market share of prepaid can be as high as 90%. In other countries, such as Finland or South Korea, the figure drops to about 2%.

A Prepaid Call (or even Calling Card) is actually established through two calls, and the first is either through and 800 Toll Free Number, and even some from the big telephone companies have them available with internationally toll free numbers , or you wil find many that offer calling through a local phone number usually printed on the back that offer cheaper rates but the first call costs are passed on to you the consumer.

You place this first call to get to the providers platform, and once connected you are authenticated via a pin number or as seen in Europe or around other parts of the world the card may have an electronic chip on it, like you may have seen on Amercian Express Blue card. If you use the local number provided from your home or cell phone you pay for the cost of the first call, you can see this on your bills even if you don't get connected. The reason that 800 toll free is more expensive because the Prepaid Calling Card Company pays for the attempts and even when you just call to check you balance, and you only pay when you are actually connected. Many Local Telephone Companies don't show local usage so you may not see that you are paying for a local call every time you make an attempt. This is not true when you call a toll free number from a land line but with Cell phones you do use air time. With most local phone companies you can get call detail to support this.

Once you are authenticated you are usually presented with your balance then prompted for your destination number (the second call), and usually given the time left on your card based on the number you just dialed. Then you are connected.

With smaller companies beware the hidden charges when the rates are too low to be true. They mave have hidden fees or poorly advertised fees, like 3 minute rounding, connection fees, monthly, weekly, daily, or even maintenance fees. Look around when you buy these smaller name brands to make sure you know what you are buying

The pseudonymity enabled by prepaid services has recently become a concern with law enforcement agencies that consider it a safe haven for criminals and terrorists. As a result, a number of countries including Australia, Germany, Indonesia, Japan, Malaysia, Norway, Singapore, South Africa, Switzerland, and Thailand have passed laws to require that all prepaid customers register their personal information with their mobile carrier.

In some countries the law requires that customers notify their mobile carrier when transferring ownership of a prepaid phone or SIM card.

In Australia, the prepaid registration policy is part of a larger law enforcement initiative that includes the creation and maintenance of an Integrated Public Number Database.