Sunday, Apr 21, 2013
Prepaid cards are as convenient to use as debit or credit cards. Shoppers can use prepaid like they do with the conventional payment cards, but without incurring late payment fees and interest rates.
They’re being marketed as the perfect tool for the unbanked and those who don’t use traditional financial products for their transactions. We’re talking about the young people who are not qualified to use a credit card, the low-income expatriates who don’t have bank accounts and the credit-wary consumers who want to avoid, or have survived, the horror of huge debt. At a summit in Dubai last week, prepaid card providers were encouraged to “exploit” the untapped market for prepaid cards.
A huge proportion of the population in the Middle East and North Africa (Mena), particularly in Egypt and Turkey, are unbanked. Based on the data put together by strategy consultancy Value Partners, the Middle East is home to 120 million young people. The outbound and inbound remittance in this market is estimated to be about $340 billion (Dh1.25 trillion).
There are also the 126 million Internet users in Mena that are growing in numbers and smartphone users, are also growing in size. Researchers are seeing a growing trend in the use of prepaid virtual wallet. About 30.5 billion consumers (13 per cent) in the US use prepaid debit cards to shop online; pay for groceries, petrol and bills, as well as for dining, according to the National Foundation for Consumer Credit Counselling.
By industry estimates, the amount of money loaded onto prepaid cards in the US was $28.6 billion in 2009. This year, the figure is likely to hit $201.9 billion, a report by BITS, the technology policy division of the Financial Services Roundtable, said.
With the launch of a number of prepaid card products locally, and as more consumers get comfortable with the idea of using a pre-loaded plastic, it is possible that the trend is replicated in the UAE. Analysts calculated that by 2015, the prepaid industry is expected to generate a sizeable revenue worth $18 billion.
However, there are risks and worries that have come to fore. Prepaid cards can be stolen or used for unauthorised transactions. What is not clear is whether or not providers will refund a customer in case the card is lost or stolen and used in a fraudulent transaction.
One bank in the UAE, however, said that they “usually” reimburse the customer as soon as they are advised about the loss or theft. This is the same problem faced by credit cardholders in the UAE. The prevailing practice is that when a credit card is lost, any transaction that happens before the loss is reported is the liability of the cardholder.
Another thing to keep in mind is that prepaid cards don’t come free of charges and if you don’t pay attention to the little fees here and there, you could pay as much extras as you would with a credit card.
When you take out a card, for example, you will normally pay an activation fee. Leaving the card idle for a certain period, reloading cash onto the card and using it to withdraw money, among other things, will invite another round of fees.
Here’s how to minimise the charges:
Choose a card with a longer expiry. The card can’t be renewed, and you will need to get a new one and pay another activation fee when it expires. Bonus tip: The date written on your card isn’t always the actual expiry date — it’s what you use when making online transactions. To avoid surprises, ask your vendor.
If you’re not much of a spender, make it a point to swipe your card once every six months (or shorter, depending on your provider’s inactivity policy). Just be careful to keep the purchase amount to a minimum, so as not to drain the stored value fast!
Plan your spending and decide how much money you will be using from your card over a certain period. This avoids the need of having to reload every time you need to use a payment card. Each reload usually costs Dh5.
As much as possible, use your prepaid only when necessary, such as purchasing air tickets and booking hotels. Providers usually set a ceiling on the amount of money you can put in the card and if you use it in every single financial transaction, you’ll lose a lot on reload fees.
Don’t use your prepaid as your go-to ATM card - unless necessary. Withdrawal fee for prepaid costs Dh5, more than twice the fee for debit cards.
Cleofe Maceda
Gulf News 2013. All rights reserved.
