Banks and e-payment firms prefer to expand prepaid cards business

The banks and electronic payments firms are looking to expand their prepaid cards business instead of credit cards.

Some of the private lenders such as Axis Bank Ltd, HDFC Bank Ltd, ICICI Bank Ltd and Yes Bank Ltd are already offering prepaid cards. Prepaid cards come in a variety forms, such as one-time gift cards, foreign currency travel cards, meal cards, corporate incentive cards and government disbursement cards.

State-owned lender, Canara Bank and foreign bank, Citibank NA are planning to enter into prepaid card business this year.

Electronic payments firms MasterCard Worldwide and Visa Consolidated Support Services (India) Pvt. Ltd say, they see their future growth in India in the prepaid segment.

Laura Kelly, group head (global prepaid and healthcare solutions) at MasterCard Worldwide said, in India prepaid card market is expected to grow by 40% every year to $59 billion (Rs.2.70 trillion today) in 2017 from $4 billion in 2009.

Kelly said, “About $34 billion will come from corporate travel, incentives, meal vouchers and payrolls, while $23 billion will come from consumer reloadable and online cards. Only $2 billion will come from public benefit, pension and social security programs.”

According to HDFC Bank there has been a rapid growth in prepaid card segment. Navtej Singh, head (direct payment products) at HDFC Bank told, “We offer all types of cards—payroll, travel, food and gift—and we have seen 75-80% growth in the last year.”

Anuj Saraswat, vice-president (global transaction services) at Citibank informed the bank will be launching a corporate incentives card this fiscal. He said, “It will be a pre-loaded card with a Rs.50,000 limit....”

While Canara Bank will soon be launching a gift card, later it will be adding travel card and a corporate card to prepaid card segment. Nagendra H.V., manager at the card division of Canara Bank informed, “The gift card will be launched very soon with a maximum un-reloadable limit of Rs.5, 000.”

In India usage of credit card is declining and prepaid cards are gaining popularity.

As per RBI data, in July the circulation of credit cards had dropped to 18.9 million as against 22.2 million in the same month last year.

A.S.V. Krishnan, working as an analyst at Ambit Capital Pvt. Ltd, said Indian banks have cut down their credit card segments because of fear of defaults, while prepaid cards are risk-free. He said, “I can spend Rs.40,000 on a credit card and not pay back, but on a prepaid card I cannot spend more than my balance. Also, banks may earn fee income from vendors on these cards, which they may not get from...debit cards.”

The e-payment firms Visa and MasterCard are aiming at government payments under programs such as the rural jobs guarantee schemes. Normally, these payments are done through cheques or cash. Both the firms are in talks in order to get them shifted into prepaid mode.

Saraswat of Citibank agreeing with the strategy said, “The 2017 targets look optimistic. But just imagine if sleeping giants like India Post, which has doubled the number of total bank branches, use this system.”