Prepaid Cards - Types and Benefits
A prepaid card is just like a credit or a debit card in the way it looks. It has a card number, a company that issues it and even the signature strip. But the similarities almost end here and the differences begin; the first of the differences being that it comes pre-loaded with money. A prepaid card cannot be used as a credit card as it has to be preloaded with money and only the amount loaded can be spent. It is different from a debit card as it is not linked to any bank account and overdraft facilities are hence not available with these cards.
Types of Prepaid cards:
There are three types of prepaid cards:
- Open looped cards – These are also known as open system cards or network branded prepaid cards. These are issued by banks and bear logos of the issuer e.g. Visa, American Express, etc. These cards are accepted and processed at any location that is approved by the banks.
- Closed loop cards – In this type of cards the acceptance is specific to location and mostly issued by merchants for purchase of goods or service at their outlet. Examples of such cards are gift cards.
- Semi open looped cards - Also known as hybrid cards, these are accepted by wider range of merchants. Examples of such cards are the ones issued by shopping malls or retail chains operating at various locations.
In Indian market prepaid cards are fast gaining popularity and many banks are providing these cards and popularising them. Axis Bank has come up with a wide range of prepaid cards. The Axis Bank Smart Pay, for example, is a rupee denominated card for disbursing your employees’ salaries. This method, as claimed by the bank, is a simpler and a more systematic way of disbursing the salary.
One more example is the HDFC Bank ForexPlus card. In this type of card, the transaction amount is debited directly from your HDFC Bank ForexPlus card balance. This is useful for international travellers.
Prepaid cards are also available in two flavours:
- Re-loadable – In this type of card, you can add money, once you have exhausted your balance. For example the telephone cards issued by some of the telephone companies are re-loadable.
- Non Re-loadable – In this type of card you cannot add extra money once the money you have loaded is depleted.
Benefits of pre-paid cards:
- These cards can be used to buy goods and services without the hassle of cash transactions
- The prepaid cards can be used to withdraw cash from ATMs (open looped cards).
- It helps you to plan your expense and spend only what is budgeted. This curbs uncontrolled spending.
- The reloadable card allows you to add extra funds as and when required (until the card validity expires).
- Even individuals with bad credit are eligible for the prepaid cards.
- Using prepaid cards is easy and it is readily available in the market.
- These cards can be used for a variety of purposes like paying outstanding bills using mobile phones too.
- Employers can use these cards to distribute salary even to employees who do not have a bank account.
- The prepaid telephone cards are a boon to people who make overseas calls. The amount spent is always under check.
- The gift card is ideal when you do not know what to buy as a present and gives the flexibility to the person receiving the gift to choose what they need.
- While travelling overseas the travellers’ card makes it possible for you to travel without having to carry cash.
- As they are like the credit card or the debit card, they can be used as substitute to these cards. The loss of a prepaid card can be accurately evaluated, while in the other two cases it cannot be ascertained.
Important points you must be aware of:
There are a few risks associated with these cards.
- Loss or theft is an inherent risk associated with money. These cards are no exception to this rule.
- People who have knowledge of your card number may misuse it. Therefore, keeping the card details discreet is of prime importance.
- There could be hidden charges associated with the cards. Therefore you must read the terms & conditions and understand them clearly before buying these cards.
- Consumer protection terms and consumer rights are not very clear and therefore consumers may lose money in the transaction. It is therefore better to buy these cards form recognised financial (banking or non-banking) institutions.
- Before you purchase the card, know the validity period and the locations where these cards can be used.
- In case of theft or loss, the recovery procedure to be followed should be known. Also find out if the card has liability protection in such cases.
In India the market is still very young as far as pre-paid cards are concerned. Many of the banks have started offering various types of prepaid cards. Cards like ICICI Bank Indian Rupee Travel Card from ICICI Bank, SBI EZ-PAY card from State Bank of India, Baroda gift card from Bank of Baroda are fast gaining popularity.
Contributed By: Aparna K S |
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Aparna has worked for Stock Holding Corporation of India Ltd (SHCIL). She has hands-on experience in various financial products. She also has expertise in various mutual funds, pension policies & other financial products. She is currently a freelance writer on various domains including finance | |
