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Emergence of prepaid cards in India

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The Indian payment ecosystem has been in a constant state of evolution. With the advent of fintech in India, many payment players, banks and technology providers introduced solutions that rapidly changed the way we shop, gift, pay, and travel.

Emergence of prepaid cards in India
The Indian payment ecosystem has been in a constant state of evolution. With the advent of fintech in India, many payment players, banks and technology providers introduced solutions that rapidly changed the way we shop, gift, pay, and travel. Additionally, Government’s Digital India vision, RBI’s constructive policies, and positive regulatory changes have pushed India towards becoming a cash-lite economy. Solutions such as prepaid cards, NPCI’s UPI, QR Codes, NFC-based payments etc., have transformed the industry.
One of the fastest growing yet underrated financial instruments in India is prepaid cards. According to an industry study, the Indian prepaid cards market is expected to grow at a CAGR of 40.5 percent between 2021- 2026. A prepaid card enables a user to transact using the pre-loaded amount. The differentiating factor between a prepaid card and a debit card is that debit card requires customer to have a savings bank account. Hence, prepaid card has the potential to cater to the unbanked population as well. It also enables the customer to control expenses as the amount preloaded is the only amount that can be spent.
Although prepaid cards were initially introduced as a closed-loop value-added product, they have evolved massively through the past decade. Prepaid cards have always been an important part of Indian customer’s digital journey. A convenient, safer and fancier alternate to cash, prepaid cards have taken various form factors over the years. The trending loyalty cards of big retail brands to gift cards and forex or travel cards, prepaid cards could also be credited with the first digital experience Indian customers had at their local kirana stores.
During demonetisation India witnessed a unique trend. The culture of gifting cash as a ‘shagun’ on special occasions; especially weddings, was seamlessly replaced with pre-paid cash cards. There’s no surprise that post demonetisation prepaid cards saw a stupendous surge. In fact, a leading gift-card company had recorded 250 percent daily growth in the prepaid cards sold post demonetisation. Post Covid-19, the gift card market in India is set to increase from $4533.7 million in 2020 to reach US$ 10869.3 million by 2025. The reason for this growth is quite simple: convenience. Prepaid cards can become an effective alternative to cash as they can enable the user to shop, pay bills, withdraw cash, and travel using a single card.
Additionally, prepaid cards mitigate the hassle of carrying a wad of cash every time one steps out of the house. In case of theft, a prepaid card will only expose a restricted amount to the fraudster as opposed to a debit card wherein all savings are at a potential risk. Few of these prepaid cards can be used to withdraw cash at ATMs and make payments at POS, making them a utilitarian payment instrument.
Generally, closed-loop cards & semi-open loop cards are functional and accepted only with a single payee at a certain store or chain of stores. The F&B industry made utmost use of these cards as users began using Sodexo Meal Card or other prepaid cards for purchasing snacks and essentials at Food Courts, restaurants, etc. However, such cards have a limited scope as they can be used only at the participating outlets.
In the past few years, many corporate organisations have begun to disburse their yearly incentives or bonuses to the employees in the form of Prepaid Gift cards, issued by Banks. . These cards can be used at various physical & online platforms similar to a debit card and at the same time provided employers with an attractive way to reward & recognise.
Another segment that can potentially be transformed with prepaid cards is mobility. In the year 2016, Axis Bank introduced India’s first-ever multi-currency, cobranded forex ‘travel’ prepaid card for both international and domestic usage. These cards are a secure and convenient alternate to carrying currency. On the domestic front, the prime example of this is the National Common Mobility Card (NCMC).
A first-of-its-kind open-loop card introduced by the Government of India, this interoperable card allows the consumer to withdraw cash, shop, commute, and pay bills across all entities that have been approved by the Reserve Bank of India. An industry first, Kochi Metro introduced Kochi 1 card in 2017 to facilitate seamless payments across retail and transit payments touchpoints in the city. Accepted in over 200 private buses, these RuPay-operated cards will also be used in the Water Metro ferries, avoiding the need to carry multiple travel cards.
Future of prepaid cards
Even though there has been a massive increase in digital payments, Indian customers need a sense of ‘physical’ owing when it comes to making transactions. Prepaid cards can seamlessly bridge this gap as it provides customers with the required ‘touch-and-feel’ experience while ensuring digital penetration across sectors, age groups and cities & towns.
These cards will give an impetus to small-value digital payments and increase overall digital penetration in cities and their rural counterparts. Additionally, interoperability on prepaid cards, including gift cards, will enable customers to withdraw cash using PPIs; thus bringing PPIs at par with Banks.
In the near future, virtual prepaid cards will be on the rise as they are electronically produced and delivered. These cards are instantly activated after an online approval and the user no longer needs to wait for a PIN to arrive at post.
Additionally, the implementation of best-in-class technologies such as tokenisation on cards – gifts, commute, forex, travel etc., will help in creating a safe, secure, smart and more importantly, a digitally connected ecosystem. Safety coupled with unmatched convenience will help us truly lead a digital life.
Prepaid instruments hold the potential to realise the ‘Digital India’ dream across India and with the growing penetration of interoperable cards - ‘One Nation, One Card’ will soon be an inseparable part of our lives.
The author, Sunil Khosla, is President - Digital Business at Ongo (digital payments brand of AGS Transact Technologies
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