The future of prepaid cards
Let’s face it, not many banks are experts at customer service. As a result of the recent global financial meltdown, negative attitudes towards banks are now firmly established.
Banks are continuing to charge their customers hefty fees to enable their customers to deposit salaries and pay bills through their bank – i.e. in effect to ‘transact’.
Whilst customers feel tied to their bank accounts, 25% considered switching* in 2011. My question for this week’s blog post is, therefore, do we all actually need a bank account – with credit cards, debit cards and other services that tie us into this feeling of being held hostage – or do we embrace the emergence of prepaid cards?
The emergence of prepaid cards
In the UAE, the likes of the National Bank of Abu Dhabi, Al Futtaim and RAKBANK all offer prepaid cards with varying benefits, including: merchant offers, ATM withdrawals, salary deposits, open loop technology for purchase transactions and online servicing. You can top-up / load your card either via branches, issuer ATM networks or via major exchange houses like Al Ansari Exchange, UAE Exchange and LuLu Exchange LLC – you can even get them from your supermarket! In these examples, the bank is simply the issuer and you don’t even need to open a bank account to have a prepaid card.
Prepaid cards are safer than cash and (unlike a credit card) aren’t a loan. Some prepaid products even come with purchase protection, travel insurance and in a handful of cases the balance is even protected, unlike other debit products. The draw-back is that some products limit the load amount to AED5000 ($1,358) so until the load amount increases I would still need my bank (if my salary is higher than AED5000 a month) but there are a great deal of consumers who do not.
The benefits of prepaid
Credit cards, debit cards and accounts have their place, but prepaid cards certainly seem to have many compelling benefits for many segments – including even the large corporate multinationals to manage corporate travel. So in theory:
- Students can benefit from a hassle-free prepaid card and their parents can top it up (therefore making controlling their finances easier)
- Young adults could use a prepaid card as a vehicle to manage payments before deciding who to bank with
- The ‘unbanked’ population could choose this form of payment vehicle in favour of bank accounts, credit and debit cards – especially when loaded with value added features
- Parents could use a prepaid card to manage pocket money for their children and to educate them on managing finances from a product that is purely a payment card not a credit card
- Travelers could use prepaid cards so they do not carry large amounts of cash or get hit by FX on their overseas spend
It’s hard to think of many disadvantages when the fees are lower than conventional credit / debit / account products and it’s all serviced online so you don’t even need to visit a branch!
What’s more those prepaid cards that are branded towards a particular theme (lifestyle – ref RAKBANK BLING card) or a merchant may always do better than a bank branded product as the prepaid card starts off as an emotional attachment to the brand rather than a transactional relationship to the issuer.