Making prepaid work

[Richard Allen] Why would anyone use a prepaid card? I’ve been doing a survey of some U.K. products in that space. (You can do your own research at Which prepaid card.) Typically, it costs £10 to get a card, a pound or so just to load some value, 50p minimum to buy something with it, a couple of quid to draw money out of an ATM, 3% currency charges for overseas use, and so on. Many of them charge a monthly fee of around £5 in return for lower charges, but they’re still expensive one way or another. Yet the market is still growing. Some of that growth is explained by the growth in online gaming, but I wonder if remittances might also be a strong growth driver. One of the cards you can get is actually two cards that are specifically designed for remittance purposes. You send one card to your Uncle Eric in Back-of-Beyond and top-up your card with value. You then “text” Uncle Eric some value (that bit is really bonkers and incurs a 2% fee) and he can take it out of any bank or ATM (with a MasterCard logo).

How much does it cost? If you ignore the cost of the card, sending £100 to USA will actually cost you about £107 and will yield approx $190 at the other end (based on $1.96=£1 exchange rate). Expensive? Well, compare it with Western Union, the market leader. It charges £114 to send a £100 that appears to yield $185. I made similar comparisons for India, Poland and Argentina. Shopping around, there are some good alternatives. I could just get a normal pre-paid card, send it to Uncle Eric (with the PIN, of course!), then add value at a UK Post Office thereby skipping the nutty “text” bit and save another £2. Some cards, such as the sensational, soar-away Sun pre-paid card, do not charge for foreign currency transactions, thus saving another 3% or so, and some come with a paying-in book and second card (for Auntie Ethel). I reckon that we can now get $195 to Uncle Eric at a cost of less than £103. That’s better than using your average credit card! We can do all that without a single bank account or credit record between us: the infrastructure is already there – it’s called MasterCard (most of the pre-paid cards I looked at were MasterCard/Maestro-branded). We just need to find ways of using it more effectively.

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