Prepaid cards on growth trajectory





That India is a cash-driven economy is no secret. If one takes a look at retail spending trends, electronic payments constitute less than 5 per cent of the transactions. A significant proportion of the population does not possess a bank account or credit history, making a huge case for financial inclusion.

Inroads are, however, being made in this respect and innovative products are being rolled out to cater to this segment. One such product is the prepaid card.

A prepaid card looks like a credit card, and works like a debit card. Cardholders pre-load the cards with funds via a cash deposit or wire transfer. There are no finance fees or interest payments as charges are deducted from the prepaid balance.

Prepaid cards provide significant benefits. The system is convenient, flexible, offers secure access to funds and the means to take control of spending, including simplified money handling, budget tracking and bill payment.

Prepaid cards also open the door to new opportunities for people who have had little or no access to the mainstream financial system. Someone without a bank account can access the mainstream financial system by loading funds onto a prepaid card. It is a secure and convenient alternative to cash.

Potential

In the past decade, prepaid has gained significant traction as a payment category with vast global potential to drive rapid growth. In India, albeit slow in adopting this payment solution, we see a steady increase in usage of prepaid cards as regulations are eased and more people become aware of the system.

According to the findings of the BCG Prepaid Market Sizing Study, prepaid card system in India is expected to grow by 40 per cent CAGR, from $4 billion in 2009 to $59 billion in 2017.

There are two types of prepaid cards — one adopts the “open loop” concept wherein usage can be made across multiple merchant locations, and the other is “closed loop” that works at a single type of merchant, like a petrol pump.

Today, we see more corporations adopting prepaid cards for several purposes including replacing checks in a payroll card, giving consumers the prepaid cards for insurance claims or, store refunds and promotions, and healthcare benefits.

Governments also use prepaid cards to provide a wide array of payments for social security, unemployment, child support, or pensions.

One trend that is fast catching up is the general purpose reloadable card that can be used to make a wide range of purchases.

Major areas where prepaid cards can make inroads include gift cards, which offer flexibility of usage, compared to gift vouchers, and safety when compared to cash. Prepaid travel cards can replace foreign currency and traveller's cheques.

It secures and protects consumers from foreign exchange fluctuations. Prepaid cards are also widely used for secure Internet and bill payment transactions. These cards are a preferred option for teenagers or youth who are yet to open their own bank account.

Obtaining and operating a prepaid card is quite simple: One can approach a bank with proof of photo identity and instantly receive a prepaid card and load funds to the card by visiting a bank or a banking correspondent.

Once payment is made, the card can be instantly loaded through a PC-based prepaid application. Money can also be refunded through the bank.

Some prepaid programmes are doing exceedingly well in India. Travel cards are currently the favourite among corporations, students and consumers for overseas travel. Marketing companies are increasingly offering fuel cards to employees while banks are witnessing a higher demand for gift cards.

The proof of the pudding is the number of gift cards launched by most banks.

According to recent research commissioned by MasterCard, the commercial and consumer reloadable verticals are expected to constitute a bulk of opportunities for India by 2017; with the public sector vertical ranking a distant third. The study also expects India to account for over 40 per cent of the open loop opportunity in the Asia-Pacific, West Asia and Africa region by 2017.

With its ease, convenience and myriad uses, prepaid cards surely looks set to gain momentum in its growth trajectory.

(The author is General Manager-South Asia and Country President-India, MasterCard Worldwide)

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