Scanning through some of the negative press and the forum comments, it would be difficult not to think so but the answer is NO. In fact, Prepaid Credit Cards represent a new and exciting payment solution which can be used in pretty much any sector to the benefit of the business or the consumer.
However, being a new market, there is so little coverage and advertising by the industry or banks on prepaid debit cards or “prepaid credit cards” as they are popularly known and with so few banks actually supporting Prepaid Credit Cards at this point, it is quite easy to jump to the conclusion that Prepaid Credit Cards are a scam.
Well, you really could not be further from the truth on this one. Prepaid card issuers, in fact have much stricter regulations than other electronic card products such as debit cards and credit cards as there are no credit checks or bank accounts required to get one. Since getting a Prepaid Credit Card is pretty easy and almost everyone who applies, gets one, the regulations around the usage or Prepaid Credit Cards, the issuers and the communication is much stricter especially for those cards available to under 18 years of age.
So why don’t the banks advertise prepaid credit cards?
Well, the fact of the matter is that banks are financial institutions which have a duty to their shareholders and stakeholders to make money and Credit cards make a lot of money for banks. Banks seem to be tempted by the idea of Prepaid Credit Cards as an idea and possibly to add unbanked consumers to their customer database but the risk of cannibalising their existing credit card market share with a prepaid card product with much smaller margins, is a commercial no no.
At the end of the day, banks cannot charge late fees, interest rates on balances and/or selling debt onto debt collectors, overdraft fees etc on Prepaid Credit Cards as there is no credit available on Prepaid Credit Cards, there is no overdraft, neither do you receive or pay any interest which means there is no debt.
Hence, the only way banks can make money on prepaid credit cards is by charging an initial fee, usually about £10 to buy the card and then a top up or usage fee. However, as the market expands and more and more prepaid credit card providers and issuers come on board with some branded cards being provided by the largest brands in the market, the margins on Prepaid Credit Cards have decreased even further making the solution even less attractive for banks. Most prepaid credit cards can now be topped up for next to nothing or allow fixed fee withdrawals or allow for free UK or worldwide point of sale merchant transactions – hence, not very attractive as a a revenue stream to banks that are used to credit card revenues.
Do banks have a hidden motive?
Not really. There is no hidden agenda but there is a commercial decision to be made. It would be great to see some major banks launch prepaid card solutions and the opportunity does exist for them, even if they do not see it. The schemes like Mastercard and VISA are definitely promoting the growth of prepaid and Prepaid Mastercard cards are quite popular. As such, with or without mass market support, there are numerous excellent prepaid card solutions in the market now such as the Caxton FX, Cashplus Prepaid Mastercard, Escape Prepaid Travel Card and Neteller.
Many leading providers of global prepaid solutions provide excellent discussion on how banks could benefit from a prepaid solution but we are yet to see banks make a major move. I guess the simple question for banks should be – what is the net value they place on getting a currently unbanked customer to them – when they have assigned a value to this which justifies their involvement, you will see them come on board..
In reality, prepaid credit cards are by far a better deal than any credit card can be for certain customers by choice and for others by need. If one were to compare the true cost of using a prepaid card and a credit card, the prepaid card would almost always win and they have none of the risks associated with owning a normal credit card.
So Prepaid Credit Cards are not a scam, banks do not have a hidden agenda but there is a hesitancy to educate the consumer and support Prepaid Credit Cards by the banks due to fears of cannibalising existing credit card channels and replacing a vastly more profitable revenue stream with a vastly more prudent and customer friendly prepaid card scheme.
As the market grows there are a number of new cards being launched such as the Secure Trust Prepaid Card and the Blue Sky Prepaid Card.
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