subject: Focus move to prepaid cards from credit cards [print this page] Banks and electronic payments firms are scaling back on issuing credit cards, choosing to expand their prepaid cards businesses instead.
Private lenders such as Axis Bank Ltd, HDFC Bank Ltd, ICICI Bank Ltd and Yes Bank Ltd already offer prepaid cards, which come in a variety of forms, including one-time gift cards, foreign currency travel cards, meal cards, corporate incentive cards and government disbursement cards.
State-owned banks such as Canara Bank and foreign banks such as Citibank NA plan to enter the business this fiscal.
Electronic payments firms MasterCard Worldwide and Visa Consolidated Support Services (India) Pvt. Ltd say their future growth in India will come from the prepaid segment.
India's prepaid card market will grow at 40% every year to $59 billion (`2.70 trillion today) in 2017 from $4 billion in 2009, said Laura Kelly, group head (global prepaid and healthcare solutions) at MasterCard Worldwide, quoting a MasterCard-sponsored Boston Consulting Group report.
"Only 3% of the personal consumption expenditure is done through cards. It's the fastest growing product for us globally and banks have already taken it up, like Axis Bank achieved a $1 billion volume on our travel prepaid card last year," said Neel Nilakantan, regional director (prepaid products) for Asia Pacific, Central Europe, Middle East and Africa at Visa.
HDFC Bank said the growth of prepaid cards has been rapid. "We offer all types of cardspayroll, travel, food and giftand we have seen 75-80% growth in the last year," said Navtej Singh, head (direct payment products) at HDFC Bank.
Anuj Saraswat, vice-president (global transaction services) at Citibank, said the bank will launch a corporate incentives card this fiscal. "It will be a pre-loaded card with a `50,000 limit...," he said.
Canara Bank is close to launching a gift card, followed by a travel card and a corporate card. "The gift card will be launched very soon with a maximum unreloadable limit of `5,000," said Nagendra H.V., manager at the card division of Canara Bank.
Prepaid cards are gaining in popularity even as the use of credit cards is declining.
The number of credit cards in circulation dropped to 18.9 million in July from 22.2 million in the same month last year, according to the Reserve Bank of India.
A.S.V. Krishnan, an analyst at Ambit Capital Pvt. Ltd, said Indian banks have pulled back on credit cards over fears of default, while prepaid cards are risk-free. "I can spend `40,000 on a credit card and not pay back, but on a prepaid card I cannot spend more than my balance. Also, banks may earn fee income from vendors on these cards, which they may not get from...debit cards," he said.
Visa and MasterCard are eyeing government payments under programmes such as the rural jobs guarantee scheme. These payments are typically done through cheque or cash; the e-payment firms are in talks to have them shifted into prepaid mode.
Saraswat of Citibank agrees with the strategy. "The 2017 targets look optimistic. But just imagine if sleeping giants like India Post, which has double the number of total bank branches, use this system," he said.
