PrePaid Cards : Consumer Side
What is prepaid cards ?
For many people, it is a new way to budget money.
A prepaid card is an alternative card that allows you to spend the exact amount you have loaded on your card. This is similar to having a prepaid SIM card where you can use the SIM for the exact amount you have loaded for making calls, messaging, etc.
Almost all major banking institutions, such as Visa, MasterCard, and American Express offer prepaid cards. Prepaid cards are sold at retail stores (usually for a fee) and some can be ordered online. Similar to gift cards, purchases can be made until funds are available in the card.
Prepaid cards can be reloadable cards you can use to make purchases wherever credit or debit cards are accepted. As you’re not borrowing any money or linking it to a bank account. There are no credit checks when applying for a prepaid card and your credit score won’t be affected when you use it. On the same lines, prepaid credit cards do not contribute immensely to improve the CIBIL score of an individual.
In fact, you’ll have most of the same conveniences that using a major credit or debit card offers without building up interest. This makes prepaid cards a great option even if you have poor banking history.
A prepaid debit card can serve as a budgeting tool or an all-out replacement for a bank account and the best prepaid cards offer convenience while charging few fees. You can load some money from your bank account to your Prepaid card and use it, so that purchases don’t affect entire amount of your bank account, but just the available amount in prepaid card. Generally, you can also use a prepaid debit card to withdraw cash from ATMs.
Prepaid cards can be useful for teenagers, fixed Income groups and relatives visiting from other countries. Also, if you are a compulsive spender then prepaid cards can be a good option. As you can’t spend more than what you put!.
The user can transact up to Rs. 2 lakh in a year and 1 Lakh per month on instant issue of card with minimum KYC. While on completion of full KYC(biometric Aadhaar KYC) the user limit is enhanced to Rs. 10 lakh in a year and Rs. 2 Lakh per month. Card holding limit is Rs. 1,00,000/- at any point in time as prescribed by the Reserve Bank of India (RBI).
Example : Myntra Gift Card, Sodexo, Fampay, EarlySalary, Niyo Bharat Card and many more.
How does it work ?
Prepaid cards combine the best features of credit cards and debit cards and offer a safe alternative to cash. Here’s a brief overview of how prepaid cards work.
- Apply for the card — You can apply for a prepaid card at the bank or order the card online. You will have to complete the KYC process to obtain the card, if ordered from bank. The bank may require that you verify your details as well.
- Load the card with money — Most cards offer a variety of options for loading funds onto your card. You may be able to transfer funds from another account or have a certain amount directly deposited onto your card at regular intervals.
- Make purchases anywhere you’d use a credit or debit card — Making purchases with a prepaid card is as simple as using any other payment card. Swipe your card at the register or enter your card information for online purchases. Some prepaid cards even let you pay bills online, transfer funds to another person or withdraw cash at an ATM.
- Reload the card once you’ve spent the balance — Each purchase reduces the balance available on your card. Once you’ve spent all the funds you originally loaded onto the card, you’ll have to reload it with more money(if it’s reloadable) . You don’t have to wait until your card is empty to reload, but your card may be subject to a maximum load amount.
For example, you deposit ₹20,000 onto your card and you decide to spend ₹12,000 on online shopping. Now your remaining balance is ₹8000. Once you have used the entire balance that you have loaded (ie. ₹20,000), you have to reload more money onto the card before you can use it again.
Prepaid cards are available for both the business and the individual. Businesses usually use prepaid cards to give out commissions, incentives, bonuses and meal cards. On the other hand, individuals can use prepaid cards in the form of gift cards for our friends and family, instead of gifting them hard cash.
Types of prepaid cards ?
There are different types of prepaid cards available in the market and this varies depending on the issuer.
- Open looped cards — These are generally branded with the network (Rupay, American Express, Visa or MasterCard) they are affiliated with and are also known as open system cards. They are accepted at locations and merchant outlets approved banks. (Eg. — Fampay, Niyo Bharat)
- Closed Loop Cards — The acceptance of closed loop cards is restricted to the affiliated merchant outlet for buying services and good at only those outlets. Gift cards mostly are issued as closed loop cards. (Eg. — Easyday, Smaash, Amazon Gift Card)
- Semi-Open Looped Cards — These are accepted by many merchant outlets or chains, who are affiliated with the card. These are majorly issued by retail chains or shopping centers and can be used at locations carrying stores with these brands. (Sodexo, Corporate Travel Cards)
- Reloadable cards — Majority of prepaid cards come as reloadable cards, where you have the option to add funds once the preloaded amount has been used.
- Non-Reloadable cards — Again gift cards fall under this category as once the customer uses the money available in the card, reloading cannot be done. Purchases can be done only up to what is available in the card.
The usage of prepaid cards depends on who is the issuer of such cards. While open system prepaid cards are issued by banks, semi-closed system prepaid cards can be issued by bank and non-bank entities.
If a card is issued by a co-branding entity, the co-branding partner shall be a company incorporated in India under the Companies Act, 1956 / 2013. The co-branding partner can also be a Government department / ministry. In case the co-branding partner is a bank, then the same shall be licensed by RBI. In case of co-branding arrangement between a bank and a non-bank entity, the bank shall be the PPI Issuer. In case both the entities are non-banks, one of them will be pre-assigned, in advance, the role of issuer among themselves.
Prepaid card V/S debit or credit card
In order to use a prepaid card, you need to load money onto it.
This differs from a credit card which allows you to spend up to a set credit limit, and a debit card which lets you spend what’s in your linked bank account. Most prepaid cards will not allow you to spend more than you have available, so you won’t get hit with credit score, expensive overdraft fees or interest. For regular debit cards, the funds for your payments are taken directly from your bank account as you make payments.
Prepaid cards are different from gift cards, despite a few similarities. You can only use gift cards to make purchases at designated locations. With a prepaid card, you can buy anything that you want from any location.
All gift cards are prepaid cards but not prepaid cards are gift cards.
Better than checks, safer than cash
Just load funds and gain easy tracking for all your purchases covering travel, entertainment and supplies. Customize it to suit your needs. Even issue additional cards to your employees.
Easy to get
Getting a prepaid card is easy. There’s no credit check or bank account required.
Safer than cash
When you register your card, if your card is lost or stolen, you can recover your money. You can’t say that about cash.
Next Chapter :- Settlement/fund flow of gift cards and Prepaid cards as a Payment Product
