Prepaid cards: ease, but at a cost
Activation & annual fees, charges for ATM withdrawals & printing statements are only some of the associated expenses. Lisa Pallavi Barbora reports.india Updated: Aug 04, 2012 02:18 IST
Cashless transactions are catching up fast in India. The total number of debit and credit cards in the country has increased roughly at a compounded annual growth rate of 20% in the last two fiscals, according to data compiled by Visa from data released by the Reserve Bank of India.
What is the reason? It’s simple: convenience. Ease of transaction is important in a day and age wherein you may not have the time to frequently visit the bank every day.Here is where prepaid cards add to further convenience. They work like debit and credit cards in the way they are used since they are mostly serviced by Visa, MasterCard or American Express — there is a chip or a strip to be swiped. Prepaid means that cash has to be loaded in advance and it can be as little as R500. "Prepaid cards are picking up," said RK Bansal, executive director, IDBI Bank Ltd. "It’s useful for corporates to give it to their employees. For example, Shriram Transport Finance Co Ltd gives these to their drivers and other agents."
But this convenience has a cost attached to it (see table). You need to do the due diligence before using such cards. In some cases, facilities such as balance enquiry, which is chargeable if done through an ATM, can be done online to save cost. In India, these cards are regulated by RBI and have to be issued by a bank. In case of a complaint, you can approach the issuing bank. These cards can’t be issued unless client details have been filled and necessary documentation such as identity and address proof is submitted to the issuing bank. Lastly, the maximum load on prepaid cards at a given point can be R50,000, in line with RBI guidelines.
What are the Popular prepaid cards?
Each card is slightly different from the other and whether you find utility in it or not depends on your needs. Here are how some of the prepaid cards function.Gift cards: You can use these cards to gift family and friends on special occasions. You can simply get one of these from a bank and can be used like any other card across a number of shops. It’s ready to use once you have paid the bank the amount you want to load on the card plus the one time activation fee. Cards can be loaded for as little as R500-1,000 and you can shop till the card has money.
Such cards are also ideal if you run a small organisation and want to give a Diwali bonus.
Travel cards: If you are travelling aboard, you can use one of these instead of carrying a lot of cash or traveller’s cheques. It also has an advantage over credit cards as currency exchange rate is locked before the travel so that exchange rate volatility is not something you need to think about. You can buy these cards for specific currencies such as the dollar or yen. Most banks usually offer sinlge currency travel cards for at least five different currencies. Recently, ING Vysya Bank Ltd had launched a multiple currency card which let users spend in five different currencies. In a single currency card, though you can make a purchase in another currency, you will have to pay an additional charge of 3-3.5% and the exchange rate at the time of purchase will apply. International bank ATMs may have their own terms and conditions for cash withdrawal and balance enquiry so you may have to pay more depending on the ATM you use abroad.
Though you can use it for a holiday, but there may be an inactivity charge. For example, if ICICI Bank’s travel card is not used for six months, $5 will be charged. However, Axis Bank’s travel cards are valid for five years and don’t levy an inactivity charge. So, it depends on the issuing bank. Here the limit on maximum load is as per the Foreign Exchange Management Act; for private visits you can load a maximum $10,000 (around R5.6 lakh) and for business trips you can load a maximum of $25,000 (around R15 lakh).
Multipurpose cards: If you are not keen on opening a bank account, multipurpose cards can be of use. Also, if your family lives in a faraway village or town with limited access or little inclination to go to a bank, this card can prove useful. You can both load and spend cash through this card multiple times. The difference between this card and a gift card is that the money can be loaded any number of times on a multipurpose card and cash can be withdrawn from ATMs. But, don’t mistake this for a substitute to a bank account as the card provides the convenience of storing money, but the storage is limited and money doesn’t earn any return.
Two freedom prepaid cards are issued by ITZ Cash Card Ltd — one in association with DCB Bank and Visa and the other with IDBI Bank and MasterCard. According to a research done by Visa, it is being used successfully as a tool by small merchants and service providers who deal in cash of small amounts on a daily basis. The advantage is that it can be bought at any merchant outlet that sell ITZ cash cards and reloaded for as little as R250. You don’t need to have a Permanent Account Number (PAN) to use this card and it is valid for five years. “Usage of these cards is area specific and depends on distribution,” said Bansal.
You can even get an add-on card and give one to your family in a distant town. Every time the add-on card runs out of cash it can be loaded from your location for a maximum of R50,000 at one time.
Should you use them?
How convenient and cost-effective a card is depends on the issuing bank, its network with merchant outlets and fee structure. It also depends on your own habits. If you constantly find yourself out of cash and ATMs are not suitably located, then maybe a prepaid card even along with its costs may work. If you are a frequent business traveller, the travel card can be of good use to you. But if you are organised and withdraw your monthly requirements then such cards are of little value to you.