The buzz on Banking St is open prepaid cards

Risk aversion on Banking St has meant banks have been working to shrink their credit-card holder base.

And since necessity is the mother of invention, they have also
stumbled on a safer option to profits: ‘open’ prepaid cards.
Such cards allow banks to offer payment services to people who are out of the banking net, besides giving access to a huge base of secure card users.

The concept has got the juices flowing for public sector banks and their foreign peers.

“We are planning to launch open prepaid cards (that allow cash withdrawals). Things are in advanced stages of examination,” said a senior Bank of India official, not wishing to be named.

“We are also exploring the opportunity since we do not have a prepaid card now,” said another from Andhra Bank.
Barclays and HSBC, too, are said to be weighing options.

“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,” a senior foreign bank official said.

Piyush Khaitan, managing director of Venture Infotek, a technical service provider to plastic cards industry, said most public-sector banks want to issue prepaid cards.

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

The Reserve Bank of India (RBI) allows banks to issue only prepaid cards by which cash withdrawals can be made.
But 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, which are authorised by RBI, can issue semi-closed cards, which can be used to make various utility payments and other transactions.

Closed cards are issued by a single entity 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%.” Central Bank and Punjab National Bank have already launched their gift cards, which, too, fall in the prepaid card category.

Central Bank is eyeing a big play in the prepaid card market, while Punjab National Bank is expected to roll out its international travel card (prepaid variant), where one can load money in rupees and use it in select countries to pay in relevant currencies.

Also, two international prepaid card industry bodies have put together their Indian teams in place last month.

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.”

UK-based ‘hiten’ cards is in talk 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.

But regulations do not permit non-bank companies to offer open cards, which most international companies want to offer. The huge turnover of some existing players shows the potential.

“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,” Surya of Itz Cash said.

George Paul, general manger (brand & ARB) retail, who heads the Petro-card and fleet operators pre-paid cards for Bharat Petroleum Corporation, said the business sees a turnover of Rs 10,000 crore with more than 2.6 million cards in existence. Another 1.7 million cards are used by fleet of truck drivers and transportation companies.

Frauds, too, are limited in prepaid cards compared with credit and debit cards.

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

“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.

Going by the officials, there isn’t much incentive for a person wanting to make a fraudulent transaction as the money involved is limited in each card.