Use Cash Cards to Control Spending

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GSR-43542The prepaid card market in India is small compared with credit and debit cards, but is fast gaining ground. According to a report by Giesecke and Devrient, a payment solutions provider, there are 17 million prepaid cards in use in India as against 316 million credit and debit cards.

Prepaid cards are essentially payment cards that can be preloaded with a definite value and then used to make purchases. The most common varieties are general use reloadable cards which can be bought by paying an upfront fee and then loaded when out of cash. Payroll cards are mostly used by companies to make monthly payments to employees. Then there are gift cards of a set value.

Open loop cards, such as payroll and travel cards, work as transactional accounts. These can be used to make automated teller machine withdrawals in the home country and abroad, and payment at points of sale. If you are travelling abroad, you can buy a multi-currency travel card in India in rupees.

The value can be as low as Rs.125 plus taxes, and varies across issuing companies. Though there are costs attached to using the card, it saves you from the trouble of carrying cash and is secured by a personal identification number.

You could also give a domestic prepaid card to children to control, manage and track their expenses.

Another variety is restricted loop cards, which can be used within a certain number of outlets. For instance, a gift card from a retail chain, which can be used across locations. These cards usually do not charge any upfront fee and the entire amount is redeemable through purchases. But these may not come with cash back facility.

Closed loop cards can be used only at a particular location. For instance, a food court card, which can only be used within the outlet to buy food. These cards also do not usually charge any upfront fee, but unlike restricted loop cards, you can claim back any unused value left in the card.

Leading prepaid card issuers in India are Axis Bank Ltd and ICICI Bank Ltd among banks and ITZ Cash Card Ltd among non-bank entities.

What’s special

One of the advantages of a prepaid card is that the chances of fraud and damage caused are limited because unlike a debit or a credit card, which are mostly linked to your bank account, prepaid cards are not linked to any bank account. “Since prepaid cards are not linked to a bank account, possibility of Internet fraud is minimal. Also, it is a convenient, secure and transparent way of making financial transactions,” says Mudit Bhatnagar, vice-president and head, marketing and corporate communication, ITZ Cash.

Gaining ground

According to World Payments Report 2013, by Capegemini and Royal Bank of Scotland, global open loop prepaid cards transaction volumes have grown by more than 20% during the past four years and are expected to reach 16.9 billion annually in 2014. “This space in India is growing at a compounded rate of more than 30%,” says Bhatnagar.

Given the security, the enhanced control that prepaid cards offer over spending, and more people getting accustomed to expense management, these cards may gain further popularity.

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