Imagine being stranded in a foreign land without enough cash on a holiday or business trip.
As per the Reserve Bank of India guidelines, a tourist can carry foreign exchange up to $10,000 per fiscal, of which only $3,000 can be carried in the form of foreign currency notes and coins.
For the rest, one has to resort to traveller’s cheques or banker’s draft. What if the cheque or draft was misplaced or stolen, or got stuck in baggage that was delayed?
Enter banks such as Axis, ICICI, HDFC and travel agencies such as Thomas Cook, Akbar TravelOnline.com, Cox & Kings and SOTC with prepaid travel cards, meant exclusively for tourists going abroad or vice versa.
Prepaid travel cards are available in different currencies and can be bought even on the day of travel. The exchange rate for a particular currency is based on what is prevalent on the day the card is loaded.
Though one can get multiple travel cards for different currencies, only one card will be issued for a single currency. One can load up to $7,000 on such cards and carry up to $3,000 in notes and coins.
“We are proud to have introduced this unique payment solution for foreign nationals and NRIs visiting India,” said P Mukherjee, president - treasury and international banking, Axis bank.
Mahesh Iyer, vice-president - foreign exchange, Thomas Cook India, said, “We launched our Smart Forex Prepaid Card in 2009, which is useful to travellers, as any misuse of this card doesn’t give access to the person’s entire bank account, unlike a debit card. And, if the card is lost, we can issue a fresh pin number immediately.”
There are three types of prepaid cards —- closed-ended, semi-closed and open-ended.
-Closed-ended prepaid cards are used for payments meant for a single purpose. For example, the card will be issued to the holder to make payments towards DTH TV bills.
-Semi-closed prepaid cards are available in physical and virtual forms. A physical card is like a normal debit or credit card and has an account number and password.
A virtual card only has an account number and password and can be used for online payments.
-Open-ended cards combine foreign exchange, travel and gift cards. These cards are issued by banks, travelling agencies and are accepted by all current point of sale (POS) terminals.
The advantages of these cards are many:
Safe and secure: If the card is lost/misused, one can block the card immediately. Banks such as ICICI offer two cards —- an active card and a deactivated card. If the active card is lost, you can call the bank, activate the second card and use it to withdraw the entire amount.
Protection against fraud: Prepaid cards are less prone to fraud as they have a high level security against magnetic strip cards. These cards use advanced technology with an embedded chip to store all confidential information.
Easy reload: Prepaid cards can be reloaded easily when the money is exhausted when you are travelling. If it is a corporate card, the company takes care of the formalities for the card to be reloaded. If it is a personal card, one can ask a family member to reload the card, provided the legal formalities have been taken care of before travel. “If a traveller exhausts the amount on a card, we can help the person reload the card within two hours,” said Iyer of Thomas Cook.
Economical: Usually, all debit and credit cards charge a mark-up percentage plus service tax on any type of cross currency transaction that is made from a foreign country. The mark-up charge is as high as 3.5% with additional service tax of roughly 0.4%.
So one ends up paying close to 3.9% on every transaction made through a card. This includes transactions such as making payments or cash withdrawals. Additionally, one has to pay according to the foreign exchange rate prevailing on that day.
“A prepaid card is convenient as one doesn’t have to pay any mark-up charges on some transactions unlike a debit or credit card,” said Vijay Kesavan, CEO of Akbar TravelsOnline.com.
“Prepaid cards usually charge extra only on ATM cash withdrawals. The charges vary depending on the bank or travel agency,” said Iyer of Thomas Cook.
Better than traveller’s cheques: Prepaid cards have an edge over traveller’s checks as well. Traveller’s cheques have to be exchanged for a required currency before they can be used for a financial transaction and very often can be exchanged only during banking hours.
“If you want money urgently and you visit a money changer after banking hours, it is possible they may charge you a 1-1.5% over and above your normal transaction,” said an ICICI Bank official, requesting anonymity.
Moreover, to exchange traveller’s checks, one has to show documents for identification. And since these checks have to be exchanged against the local currency of a country, they are not accepted at any POS terminals unlike prepaid cards.
Protection against fluctuating exchange rates: Prepaid cards carry the exchange rate that was prevalent on the day the card was loaded. Hence, it offers protection against fluctuating exchange rates while making purchases abroad.