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Could prepaid cards gain greater market share?

26 February 2010 16:58:48

Prepaid cards could become more prevalent. image
Prepaid cards could become more prevalent.
While prepaid credit card usage is relatively widespread in the US, the payment method has taken longer to catch on in the UK. As an illustration of this, a survey conducted by Which? suggests that while three in four members of the consumer focus group have heard of prepaid cards, just 3% actually own one. However, with 13% of non-users intimating that they are open to the idea of owning a prepaid card, the products appear set for an increase in popularity.

What are the benefits of prepaid cards?

One of the chief advantages of prepaid credit cards is that no credit checks are carried out by providers. Indeed, the fact that "everyone" can get a prepaid card was used by Ryanair as a defence of its policy to levy a charge on all of its customers' credit and debit card payments, except those made on a prepaid MasterCard. Furthermore, the cards offer increased fraud protection as they are not linked to a bank account, are widely accepted both at home and abroad and make it impossible to rack up debt, as consumers can only spend the cash they have loaded onto the products in advance.

When are prepaid cards best used?

To continue the budgeting theme, prepaid cards can be used to help manage household finances as users are guaranteed not to spend more than they have stored on their cards when they go out shopping. This also makes prepaid cards handy on school trips, as parents are able to provide a set spending limit for their children without the worry of handing over a roll of banknotes. However, it is on holidays that prepaid credit cards are most often used. The product offers improved security, as travellers do not have to carry around bundles of cash; the exchange rate is fixed at the time of loading; and foreign exchange fees are avoided. They are also easy to use, as they can be loaded by phone.

Other things to consider

While there are undoubtedly many benefits to prepaid cards, there are also some things to look out for, so consumers are advised to read the small print of their contracts to ensure they avoid having to pay a financial penalty. In some cases, pitfalls include application fees, top-up fees and inactivity fees. Even so, Neil Munrow, spokesman for Equifax, believes the cards are set to become increasingly prominent over the next few months due to the impact of the global economic downturn. With credit cards harder to come by, Mr Munrow said prepaid cards offer a solution to people "excluded from the mainstream". "They are starting to become more prevalent as we move out of the recession," he commented. "There are a lot of people who have impaired credit files and prepaid cards are a good way of restoring their credit history."ADNFCR-2196-ID-19640716-ADNFCR ADNFCR-2196-ID-19464191-ADNFCR

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