Apart from Debit Card and Credit Card, there is another variety of card viz. Prepaid Card. As the name suggests, Prepaid Cards work on the theme of pay now and use at your convenience, very similar to prepaid mobile phone cards. All you need to do is to buy a card, load it with the desired amount and the card is ready for use. You do not require any account to use these cards.
Prepaid Cards are of three types – “Closed-loop”, “Semi Closed-loop” and “Open-loop.” Most Prepaid Cards that have a network logo on them (Visa, MasterCard, American Express, etc.) can be used at any location that accepts that brand. A card that you can only use for a specific purpose, like a transit card or a retailer gift card, is a “closed-loop” card. It doesn’t have a network logo. Cards with network logo can be “Semi Closed-loop” or “Open-loop” cards. The only difference is that while “Open-loop” cards can dispense cash, it is restricted in case of “Semi Closed-loop” cards. Prepaid Cards can be reloadable or non-reloadable depending on their purposes and usages.
Prepaid Cards can be of various types based on their usability, reloadability, and acceptability. The common types are Payroll Card, Government Benefit Card, Gift Card, Travel Card, Incentive Card, Transit Card, etc.
Almost all Commercial Banks issue Prepaid Cards and they name the cards of their own to keep the identity of the Banks. Over a period, Reserve Bank of India has revised guidelines relating to Prepaid Cards to accommodate the growing need of the people at large.
Let us now discuss Pros and Cons of the Prepaid Cards, as under:
Pros of Prepaid Cards:
Stay in the Black:
Proponents of Prepaid Cards point out that they are highly flexible alternatives to Debit and Credit Cards. Major benefits include the fact that you can’t spend more than that you have on the Prepaid Card. This makes them a valuable aid to budgeting, helping to prevent you falling into the red.
Prepaid Cards are Widely Accepted:
Prepaid Cards are a widely accepted means of payment, both within the country and abroad. You can use Prepaid Cards to pay bills, which could be preferable to sending cheques through the post if you don’t have access to a Debit or Credit Card.
If you’re worried about card fraud and identity theft, a Prepaid Card could be a good option as they’re not linked to your bank account and are PIN-protected. You can also use Prepaid Cards to buy goods online, safe in the knowledge that a fraudster who managed to get hold of your Prepaid Card details could not run up credit at your expense.
Replacement Prepaid Cards:
If you are planning to use a Prepaid Card abroad, they are safer than carrying cash and are a handy alternative to cash / Traveller’s cheques. Your money is safe and replaced if the Prepaid Card is lost or stolen.
No Foreign-exchange Fees on Purchases: Unlike most Debit and Credit Cards, Prepaid Cards do not charge foreign-exchange fees for purchases made abroad provided, the local currency matches with that on the card.
Chargeback on Prepaid Cards:
As a holder of Prepaid Card, you may be able to claim back any losses from the card provider using the chargeback mechanism. So if a purchase goes awry, you are the victim of theft or fraud, or if a purchase doesn’t arrive or is not as described, you may contact your Prepaid Card provider to put forward a claim.
Cons of a Prepaid Card
While there are a number of genuine benefits of having a Prepaid Card, they must be weighed against the disadvantages – chief among which are the numerous charges imposed by Prepaid Card providers.
Prepaid Card Charges:
In almost all Prepaid Cards currently in the market, at least one of the following charges is enforced. Each would be enough to go against the appeal of the cards. Common charges include:
- application fees
- monthly fees
- top-up fees
- transaction fees
- ATM withdrawal fees, etc.
No Earnings on Funds Held in Prepaid Card:
While money held in Savings Bank account earns interest, no interest is earned on money held on a Prepaid Card. It is, therefore, of utmost importance to load the card judiciously and as per requirement.
Avoiding Embarrassment with Prepaid Cards:
As you can’t get any Credit on standard Prepaid Cards (hence they are not Prepaid Credit Cards), you must make sure that you have enough money loaded on them before making purchases or withdrawals. Otherwise you could find yourself in an embarrassing situation at the cashpoint or checkout.
SBI launched its prepaid card in 2013 for blue collar workers & students as primary focus. I was heading Payments at that point of time as General Manager (Payment Solutions).
Here is the news article for the same in The Hindu Business Line: http://www.thehindubusinessline.com/money-and-banking/sbi-launches-prepaid-card-for-workers-students/article4647453.ece