Chitra Pandeya, head, retail liabilities, HDFC Bank
“While the prepaid card base is still small, we expect it to grow at over 100% every year”
|Click here to see graphic: Types of prepaid cards|
The only birthday that didn’t give Sarah Huda palpitations was her own. “I couldn’t think up cool gift ideas for friends, assuming I’d have the time to go shopping, and giving cash was so crass. But then I discovered gift cards offered by my bank,” says the 28-year-old Mumbai-based textile designer.
Across the country, Tajinder Singh, a clerk at a public-sector bank in Delhi, regularly picks up cash cards of Rs 5,000 denomination. “I prefer ItzCash to buy train tickets,” says the man who has never been offered a credit card, and was among the 9.1 lakh Indians who bought train tickets online using a cash card in May 2008.
From being used to buy tickets to being offered as a gift, the most recent avatar of plastic money— prepaid cards a.k.a cash cards— has finally come of age. The concept is similar to that of prepaid cards used to recharge phones, only much broader in scope. A majority of prepaid cards feature the Visa or MasterCard logo and look like a regular credit/debit card. Provided you are over 18 years of age, you can use them to make purchases and bill payments, online or offline, but you can only spend the balance that has been preloaded onto the card. This means there is no risk of running into debt as it has no credit or overdraft facility, nor is it linked to a bank account, so you don’t have to worry about a fraudster wiping it out.
You may wonder why and who would want to own a cash card, what with a debit card being offered with every bank account and the e-commerce savvy already boasting at least one credit card. The appeal of a cash card may indeed seem rather limited, but only among the urban, educated Indians. There is a huge segment—96% of the population with no online access and 69% without a bank account—that has the potential of being brought in the banking ambit through the use of prepaid cards. Says Chitra Pandeya, head, retail liabilities products, HDFC Bank: “While the prepaid card base is a small percentage of the overall card base comprising credit and debit cards, we expect it to grow at over 100% every year.”
The fact that prepaid cards offer the flexibility to customise card offerings as per customer requirement is a bonus. Better still, these cards, unlike credit cards, are remarkably free of hidden fees, be it transaction charges or annual fee.
An emerging advantage of prepaid cards, as far as corporations are concerned, is for meals and salaries. While meal cards do away with paper coupons, salary cards bypass the salary accounts. Adds Pandeya: “This is a huge value addition for the IT/BPO sector, where the companies want to fund their foreign-based employees. It promises better fund management for them.”
But the most ubiquitous prepaid cards offered by banks are gift cards. If you don’t want to gift cash, these cards make for a handy alternative, and are better than vouchers as the receiver can use them at a variety of outlets ranging from movie halls and shops to restaurants. Available in denominations of Rs 500-50,000 depending on the bank, these cards incur an issuance fee between Rs 100 and Rs 200 per card, in addition to replacement fee. But some would say it’s a small price to pay for the convenience that these cards promise.
Then there are cash cards geared exclusively for travellers. Be it the HDFC Bank’s ForexPlus Card, SBI’s Vishwa Yatra card, ICICI Bank’s Travel Card or Standard Chartered Bank’s SmartTravel, they all offer a safe and more convenient alternative to travellers’ cheques. Available in several foreign currencies, these cards score over the international debit cards as they incur comparatively lesser charges at ATMs.
Also, there is no scope of overdrawing money and being stung with excessive interest rates. But the fee for recharging varies— while the ForexPlus Card can be reloaded anywhere, others like SmartTravel can only be recharged in India. So be careful while shopping for such a card. Besides, many users have complained that merchant establishments abroad reject prepaid cards in favour of credit cards, so you may end up making multiple ATM visits. It will be a good idea to check the acceptability of a card with the bank before picking one up.
It’s not just banks that are rolling out a variety of cash cards. Private players like ItzCash, ICash Card and Done Cash too have joined the bandwagon, albeit only in the eand m-world. You can use these cards to pay utility bills, buy air and train tickets, shop with select merchants and pay insurance premiums.
Gift card options too are available and there are enough and more takers. ItzCash alone claims to process between 50,000 and 70,000 transactions daily. These cards, available in denominations of Rs 100 to Rs 10,000, carry a 12-digit account number and a four-digit password at the back of the card. It’s protected by a silver foil that you need to scratch to make transactions. It’s used like a use-and-throw credit card and is generally valid for a year.
While you can pick up these cards at affiliated stores, the players are also offering home delivery for denominations of over Rs 1,000 to gain takers. And should you lose your card, they are supported by customer service. Little wonder then that cash cards are slowly eating into the credit card pie. In the past six months, the Indian Railways has seen reservations through cash cards increase by 1 per cent every month, the exact rate at which the number of credit card transactions have dropped in the same period. However, their biggest limitation is that they cannot be used offline, including at ATMs.
A major advantage of a prepaid card is that it is ideally positioned to be a learning tool—it teaches one how to budget and keep track of the spending. So if you are afraid of yielding to your child’s demand for a credit card, you could allow him to cut his teeth on a cash card.