Banks adopting safer option of open prepaid cards

Banks are shrinking their credit card segment to avert risks. In view of this banks are adopting the safer option to make profits, ‘open’ prepaid cards.

Through open prepaid cards banks will be able to offer payment services to people who are not using net banking, while enabling easy access for huge base of secure card users.

This concept has worked well for public sector banks and their foreign peers.

An anonymous senior Bank of India official said, “We are planning to launch open prepaid cards (that allow cash withdrawals). Things are in advanced stages of examination.”

Another official from Andhra Bank said, “We are also exploring the opportunity since we do not have a prepaid card now.”

Even Barclays and HSBC too, said they are also weighing options.

A senior foreign bank official told, “We want to issue a card to vendors, dealers, suppliers, etc who work with a company. But our parent requires us to do KYC (know your customer) verification for each individual who holds a prepaid card. That may not be feasible. So we are assessing.”

Piyush Khaitan, managing director of Venture Infotek, a technical service provider to plastic cards industry, told now most of the public sector banks are preferring to issue prepaid cards.

Khaitan added, “It is the best way to cover people who are not covered by the banking channel.”

According to the Reserve Bank of India (RBI) banks can issue only prepaid cards which can only be used for cash withdrawals.

But two private companies such as Itz Cash Cards (a unit of Zee, the company that owns 50% of Diligent Media Corporation, which publishes the DNA) and Done Cards, authorized by RBI, can issue semi-closed cards, using which various utility payments and other transactions can be done.

Single entity issue closed cards to its customers or vendors for payment to be made to the same entity.

Naveen Surya, managing director of Itz Cash Cards, said, “Banks offer forex, meal cards etc, but so far most have not come up with a general purpose prepaid card. The population covered by credit and debit cards is just 10%, of which credit is hardly 2%.”

The two public sector banks Central Bank and Punjab National Bank have already launched their gift cards, and these cards fall in the prepaid card category.

Central Bank is aiming to become a big player in the prepaid card market, while Punjab National Bank is planning to roll out its international travel card (prepaid variant), in which customer will get facility to load money in rupees and use it in select countries to pay in relevant currencies.

Last month, two international prepaid card industry bodies have made entry in India.

Tony Craddock, chief executive director of Global Prepaid Exchange, based in London, said, “Many US and UK-based companies are willing to enter the prepaid market in India. There is a whole lot of money waiting to enter in this sector.”

The UK-based ‘hiten’ cards is having discussion with programmers and the regulator to launch prepaid cards in India. “We have already done our feasibility test,” Jitendra Mistry, financial consultant of hiten Prepaid MasterCard, said.

As per Indian banking regulator non-banking companies cannot offer open cards while most of the international companies are looking forward to offer the same. Some of the existing players have a huge turnover which shows good opportunity in India.

Surya of Itz Cash said, “We had a turnover of Rs 2,000 crore in the last financial year and this year we are hoping to touch Rs 2,500 crore”.

George Paul, general manger (brand & ARB) retail, who heads the Petro-card and fleet operators pre-paid cards for Bharat Petroleum Corporation, told there are more than 2.6 million cards in the market thus company is seeing a turnover of Rs 10,000 crore. With another 1.7 million cards being used by fleet of truck drivers and transportation companies.

Event the chances of frauds in prepaid card are quite low as compared to credit and debit cards.

Paul said, “In the last 10 years of our history I haven’t heard of a fraudulent transaction”.

“In the last five years, I haven’t come across any instance of fraud. There may be one or two cases of theft, but no fraud,” Itz Card’s Surya said.

As per the information provided by officials, a person who tries to make fraudulent transaction will not get much incentive as the money involved is limited in each card.