Ease and convenience but at a cost

Ease and convenience but at a cost

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 (RBI). In terms of money, compared with a total spend of around 34,000 crore on credit cards and 6,000 crore on debit cards in FY06, the spend in FY12 was 96,600 crore for credit cards and 53,400 crore for debit cards.

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 500. “Prepaid cards are picking up. 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," says R.K. Bansal, executive director, IDBI Bank Ltd.

But this convenience has a cost attached to it. This cost can be in the form of activation fee, annual fee, automated teller machine (ATM) withdrawal charge, charge for printing a statement or any other such service related fee (see table). You need to do the due diligence before using such cards and check the terms and conditions. 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. Additionally, 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 50,000, in line with RBI guidelines.

Popular prepaid cards

Naveen Kumar Saini/Mint

Also See | What You Pay (PDF)

Gift cards: As the name suggests, you can use these cards to gift family and friends on special occasions. According to Axis Bank Ltd’s official spokesperson, gift card is the most popular prepaid card issued to both corporate and retail segments.

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 500-1,000 and you can shop at different places till the card has money.

Also See | Other Cards (PDF)

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 while spending overseas. 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 through one card. 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% (depending on the bank) 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, keep in mind that there may be an inactivity charge. For example, if ICICI Bank Ltd’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 terms and conditions of 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 5.6 lakh) and for business trips you can load a maximum of $25,000 .

Multipurpose cards: If you are not keen on opening a bank account or are shy to walk into a branch, 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. So cash can be managed outside of a bank account. 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 which it would have in a bank account.

Two freedom prepaid cards are issued by ITZ Cash Card Ltd—one in association with DCB Bank Ltd and Visa and the other with IDBI Bank Ltd 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 250. 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. They do help in financial inclusion providing some money management for people who don’t have bank accounts," says Bansal. There are limits on transactions. For example, for ITZ DCB Freedom card there are annual limits— 2 lakh if no PAN details are provided and 6 lakh if PAN details are available.

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 50,000 at one time. Keep in mind the costs for each transaction or activity you do through these cards.

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. On the other hand, if you are organized enough to budget and withdraw your monthly requirements then such cards are of little value to you.