Pre-paid credit cards could soon become more common than phone cards as providers scramble to meet demand for more flexible payment options.
In recent weeks, MasterCard and Visa have launched a raft of pre-paid cards, hoping to cash in on markets previously beyond their reach - such as children, students and adults who have a poor credit history. Pre-paid cards, which could eventually be available at local convenience stores, allow the user to shop online, over the telephone or in person using credit paid for with cash when the card is purchased.
Users load the card with their desired credit amount, typically less than $1000.
The cards don't require a bank account, and can be given away as a gift, or a kind of electronic pocket money to children, allowing purchases such as music downloads.
Already common in overseas markets - including the US, where they are popular among illegal immigrants unable to open bank accounts - pre-paid cards are relatively new to Australia.
But MasterCard and Visa believe there is growing, unmet demand as credit card-style transactions become increasingly necessary for purchases such as airline tickets, hotel bookings and online items.
Infochoice analyst Denis Orrock says pre-paid cards may also prove popular with shoppers concerned about online security.
"In Australia, they will fill a void for people who want to shop on the Net but aren't comfortable using their credit card," Orrock says.
"With a pre-paid card, you know what you're in for."
MasterCard has launched two pre-paid cards, the Westpac Gift Card, available with pre-paid amounts of between $15 and $800, and the Commonwealth Bank travellers cash card, an ATM card
that allows travellers to withdraw pre-paid cash in foreign currency.
Last month, Visa launched the ANZ Gift Card, following up on its Heritage Building Society card, released in May, and the Visa BoPo, its first general-purpose pre-paid card.
Last month also saw the release of Visa's CashXpress, allowing users to send money overseas, and the Universal Visa Gift Card.
Although they miss out on the interest charges that accrue on a credit balance, card providers make money from the sale of individual cards, which cost around $5 each.
They can also re-invest the prepayments until the money is spent, earning returns on the short-term money market.
Based on US experience, most card users take about three months to spend a balance.
As well, Denis Orrock says card providers can usually bank on small sums of a few dollars each remaining unspent at the card's expiry date, generally around six months after purchase.
Source: Sunday Telegrah
