Gifting a prepaid card this festive season can be a good option. Prepaid cards or pre-loaded cards with fixed cash limits are available off the counter at select banks.
A prepaid card works exactly like a debit card and can be used to make purchases at retail outlets and withdrawals at automated teller machines (ATMs). But unlike a debit card, you don’t need a bank account to own a prepaid card. All you need is to comply with the requisite know-your-customer norms of the bank.
The prepaid card offerings available these days include gift cards, travel cards, and even payroll or reimbursement cards issued by companies to their employees. Instead of crediting the salary in their employees’ accounts, companies directly load these on payroll cards. Some banks also offer remittance and annuity cards to their employees, wherein the remittance or the pension payout gets loaded directly on the card. However, the more popular prepaid offerings continue to be gift cards and travel cards.
“The origin of prepaid cards was in the same space as the debit payment system. These are not replacements for debit cards. These serve a niche purpose by providing the flexibility of a debit card,” says Shyamal Saxena, general manager, retail banking products, Standard Chartered.
The State Bank of India (SBI), Axis Bank, HDFC Bank, ICICI Bank and Standard Chartered are some of the banks that offer prepaid cards to their clients.
Gift cards
These are versatile gifting options, in which the entire amount need not be used in a single transaction, as in gift vouchers. Typically, a minimum amount of Rs 500-Rs 1,000 to a maximum of Rs 50,000 can be loaded on the gift cards.
But the flexibility of a gift card comes at a price, compared with gift vouchers where you only pay the face value of the voucher. Either Rs 100 or a per cent of the total loaded amount is charged as an issuance fee, whichever is higher. Another drawback is that a gift card can neither be used to withdraw cash from an ATM nor be reloaded.
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Travel cards
Recently, Standard Chartered launched ‘Vivid Britain’ prepaid travel cards, in collaboration with the British Tourism Authority. These cards allow customers to avail discounts at various retail outlets in Britain. A similar product was launched by ICICI bank with American Express this week, giving users an access to offers, by participating merchants in more than 75 countries.
Besides these customised offers, travel cards insulate customers from currency-conversion rate fluctuations. Uttam Nayak, group country manager, India-South Asia, Visa, explains, “Travel cards are loaded in destination currencies. Hence, the conversion rate is applicable only once and gets locked in on the day the card is purchased.” One can purchase prepaid travel cards in major currencies such as the dollar, pound, euro or yen by paying an issuance fee of Rs 100- 200.
You can also save on the currency conversion charges levied by banks each time you swipe a credit or a debit card internationally. The charges are 2-3.5 per cent of the transaction amount. However, other charges, such as those for ATM usage, are applicable. Typically, a flat fee of $1-2 or equivalent is charged.
Using a travel card can be a better option than traditional traveller’s cheques, since merchants can levy a fee for encashing the cheques.
If you happen to lose the card, you simply need to call up the helpline to block it. If you wish to reload the card, like a travel card while you are travelling, you can do it using internet banking.
But prepaid cards do not offer loyalty or reward points like credit or debit cards. “These cards cannot replace debit cards and the need for bank accounts, but these can be given to youngsters or dependents as they offer financial freedom and yet restrict access to the entire account balance,” says a senior SBI representative.
