Pay and save the prepaid way

PREPAID cards are growing in popularity in the Arab world, helping people to control their spending – and not get into debt.

With prepaid plastic cards, you 'load' the card with money then use it to make payments wherever plastic cards are accepted, including online and overseas. This means you can only spend what you have, while eliminating the need to carry cash.

Although prepaid cards have many of the same benefits as debit cards, they are also increasingly empowering those without a traditional banking relationship to take advantage of electronic payments. In a world with a 2.5 billion-strong unbanked adult population, prepaid cards have huge potential.

Here, cashy looks at prepaid cards and what's on offer in the Arab world... 

Prepaid: the uses

Prepaid cards can be used in a variety of ways. The most obvious usage is to pay for goods or services online or in person – in a retail outlet or restaurant, for example.

There are other uses too, though. Like a gift card, you can load a prepaid card with a certain amount to give as a present. The money can be spent on anything the recipient chooses.

They can be used as a travel card. Cards loaded with the currency you desire can be taken on holiday and used as payment. It is convenient and safer than carrying cash.

In the corporate world, workers are sometimes given preloaded cards as payment for work or for job-related expenses. 

Market grows globally

The total loaded onto prepaid cards will climb to $672 billion over the next three years – more than double the $330bn loaded onto these cards in 2009, according to Mercator Advisory Group.

Over the past six years, Visa has witnessed exceptional growth in the prepaid market. It is today Visa's fastest-growing product area. Globally, the market is expected to be worth $7.5 trillion by 2012 compared to $6.2trn in 2009, according to Scott Salmon, head of prepaid global market expansion at Visa.

Growing demand from both the public and private sectors will drive growth in branded prepaid cards, says Boston Consulting Group.

GCC market

Overall, the prepaid sector in the GCC looks set to be valued at $188bn by 2012, Visa predicts. After India, the Middle East represents Visa's largest prepaid market.

Speaking at the second regional Prepaid Summit, held in Dubai recently, Salmon said Visa saw 182% growth in prepaid cards in Middle East last year.

''There are a number of important factors driving this growth, including globalisation of the workforce, increasing spending power among youth, a general shift from paper to electronic payments, as well as the increasing desire among consumers for more convenient payment methods,'' he said.

In the UAE alone, the market is expected to exceed $18bn within the next five years. Similar growth is predicted for Saudi.

Prepaid products make up 40% of new payment products developed by Network International, a payment solution provider, over the last three years.

Yet despite being one of the fastest-growing plastic card sectors in UAE, the penetration of prepaid cards is still low and that is primarily attributed to the lack of variety of products on offer.

That said, research by TNS Global reveals that consumers are becoming increasingly aware of the benefits of prepaid products. Only 6% of UAE consumers use a prepaid card rather than cash or credit cards. However, more than 50% said they would like to have a prepaid card. 

Businesses get in on act

In the UAE, the most common prepaid cards are telecom cards (such as Etisalat or du cards), metro or bus cards and road toll cards called 'salik'.

A growing band of companies are starting to explore this innovative mode of payment. Shopping mall owners, retailers and health insurance companies are coming out with prepaid products. Even the banks are eager to introduce products in this space as an alternate source of revenue.

Majid Al Futtaim Group, which owns some of the biggest malls in Dubai like Deira City Centre, Mirdiff City Centre, Mall of the Emirates and Ibn Batuta Mall, has started offering prepaid gift cards. Sharjah Islamic Bank has launched a prepaid card called 'Jeans' targeting the youth, while Rakbank has introduced a similar product called 'Bling'. Emirates NBD is in the process of developing a prepaid payroll card.

In Oman and Kuwait, prepaid gift cards from Commercial Bank of Kuwait and Bank Muscat are gaining popularity. UAE Exchange has introduced prepaid wages cards for blue collar workers. More businesses are likely to join the fray.

The advantages

Still not convinced? Here are cashy's top five reasons to go prepaid:

1. Prepaid cards are an excellent way for low-income workers to transfer money home and protect themselves from fraud and theft. They also serve as a protection against claims from employers.

2. Prepaid cards do not get you into debt, as you can only spend up to the balance loaded onto your prepaid account.

3. Prepaid cards are widely accepted on the Internet. Goods and services are usually much cheaper online, so you can grab some bargains using your chosen prepaid card. If you are unlucky enough to fall victim to online fraud, your loss is limited to the amount loaded.

4. Prepaid cards put you in control of your finances and are an excellent tool for budgeting.

5. For teenagers and children, prepaid cards are a good way for them to learn financial planning. It gives them a sense of responsibility, while parents retain control over their monthly expenses and can track their spending. 

Pic credit: worradmu/ FreedigitalPhotos.net

Do you or anyone in your family use prepaid cards? Do you find them a convenient way to control your budget? Tell the cashy community!