Personal Finance

How prepaid cards can help you stay prudent with your spending

Using prepaid cards for e-commerce transactions also limits the risk of fraudulent transaction to amounts loaded

The pandemic obtained most of us purchasing on-line and minimizing the usage of money. Among the digital fee modes, prepaid fee devices have seen elevated utilization for the reason that starting of 2020. Of course, these prepaid cards can be used each on-line and at stores. As of September 2020, over 16 crore new prepaid cards have been issued, in keeping with Worldline India’s third quarter (July-September 2020) digital funds report printed on December 1. Prepaid cards recorded 15 per cent progress within the third quarter vis-à-vis the earlier three months.

These prepaid cards are being issued by banks for the retail clients. Many fintech companies have partnered with corporates to challenge prepaid cards for workers.

State Bank of India (SBI), HDFC Bank, Axis Bank, ICICI Bank, Yes Bank, Bank of Baroda, and so on. challenge prepaid cards. Similarly, a few of the fintech companies issuing these prepaid cards embrace Zeta, Transcorp International and EnKash.

What is a prepaid card?

Prepaid cards are issued by banks and monetary establishments, and can be used for transactions in an identical approach as credit score cards. Unlike regular credit score cards that operate on borrowed funds, in prepaid cards, you need to load money as per your requirement. Generally, when you use a prepaid card, you are restricted to spending money that’s already loaded on the cardboard. So, you don’t overspend whereas utilizing it for purchasing.

A prepaid card permits customers to pay utility payments, make purchases at meals retailers, store on-line and swipe at point-of-sale (POS) terminals.

Ayan Agarwal, Vice President-Payment Systems, Transcorp says, “Prepaid cards are the safest methods of transacting, as the liability is limited to the balance in the card, as opposed to one’s entire bank account linked with a debit card or the entire limit of a credit card.” Also, it comes with a PIN and one-time password (OTP). These are despatched to the registered cellular quantity for all merchant-based transactions and on-line purchases.

Prepaid cards had been primarily used for on-line transactions

According to Digital Payments Report from Worldline India, the variety of prepaid card transactions processed at level of sale (POS) terminals was 86.2 lakh. The determine for e-commerce transactions, card-to-card transfers and digital invoice funds by ATMs, and so on. was 26.7 crore.

In phrases of worth, Rs 2,275 crore was processed at POS terminals by prepaid cards whereas Rs 7,589 crore was processed for on-line and different transactions.

Sapna Tiwari, Co-founder and COO, Rupeewiz Investment Advisors says, “These numbers show that consumers are taking measures to restrict their spending by taking to prepaid cards for regular day-to-day transactions and for online shopping in these pandemic times.”

“Using prepaid cards for e-commerce transactions also limits the risk of fraudulent transaction to amounts loaded, which may be a much smaller amount compared to your credit card limits and your debit card linked with your savings bank account, which will have higher balance,” says Ashish Apte, CEO at AAA ResearchOne Financial Consultants.

What works for prepaid cards

Contactless utilization on prepaid cards is restricted to Rs 2,000 per transaction, in keeping with RBI tips; for normal and on-line transactions, the restrict is Rs 1 lakh. Cardholders are additionally secured with an insurance coverage cover as an extra profit by a few of the banks and fintech companies issuing such cards.

The prepaid meal card issued by your employer will give you tax advantages. For occasion, if your employer hundreds as much as Rs 2,500 per 30 days on your prepaid meal card, it turns into a non-taxable revenue for an worker as per the revenue tax act. This quantity can be spent just for purchases of meals and drinks from e-commerce web sites and outlets accepting the cardboard.

What doesn’t work

Banks and fintech companies issuing the prepaid cards usually are not liable to pay any curiosity on the steadiness excellent within the prepaid card at any cut-off date. “You shouldn’t maintain a balance of more than three months’ expenditure on such prepaid cards. Use the balance on this prepaid card while shopping or paying utility bills on priority,” says Apte.

Also, the person has to utilise the steadiness quantity on the prepaid card inside the validity interval talked about whereas issuing the cardboard. In case it lapses, then the excellent steadiness on the prepaid card will probably be transferred for compliance right into a separate fund categorised by the financial institution as per the regulatory tips. Tiwari says, “The procedure for claiming this outstanding amount from the separate fund after expiry of the card will be a tedious and long process.”

There are expenses and costs for holding the prepaid card. Issuance, annual, loading, transaction and card alternative charges could also be charged.

What if I lose my prepaid card loaded with money?

In case the prepaid card is lost, you can report it to the issuing financial institution department or buyer care (e-mail / name centre) and a alternative card can be requested. A alternative card will probably be issued, and the steadiness quantity will probably be transferred to the alternative card.

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