Will prepaid cards replace cash and cheques?
By UK CreditCards.com
There have been huge changes in the way we pay for things in recent years. For example, the use of plastic has increased drastically, whilst other, more traditional payment methods have been on the decline.
A relatively new payment method is the prepaid card, which is only just starting to become popular in the UK. Developments in technology, such as the introduction of contactless payments, has also seen a further boost in the number of UK prepaid credit cards on the market, prompting many to wonder: Are prepaid cards destined to replace cash and cheques?
Other cash-based forms of payment on the decline
The use of cash as a payment method has been on the decline for a number of years, yet the use of plastic to pay for things has increased, according to the Centre for Retail Research.
In fact, research from The Payments Council suggests that cash will actually be used for less than 50% of all transactions by 2018 and that over 95% of workers will receive their wages into their bank accounts rather than in cash.
Cheques may soon be on their way out, as well. July 2011 marked the end of an era after the government came crashing down on the cheque guarantee system. Previously, if you paid a merchant with a cheque, the bank would guarantee the payment (between £50 and £250), even if there were insufficient funds in your account.
The end of this system doesn't mean that you cannot use cheques any more. However, the number of companies accepting them is likely to fall dramatically. There have also been calls to end the cheque completely, but the government claims to have no such plans in place. Even so, the Payments Council predicts that, by 2018, cheques will only account for 0.8% of all transactions.
The number of prepaid cards on the market has risen sharply due to the demand for faster and more convenient payment methods.
A new form of payment: prepaid cards
The first prepaid cards in the UK were issued by CashPlus in 2005, with Virgin following closely behind in 2007 in an effort to help out individuals without access to a bank account. Since then, the number of prepaid cards on the market has risen sharply due to the demand for faster and more convenient payment methods.
Prepaid cards work in a similar manner to a pay as you go mobile phone. If you have no credit loaded onto the card, you cannot make any purchases or withdrawals. Users have to load money onto the card in advance and then use it in store, just as you would a credit or debit card. There are currently three providers of prepaid cards in the UK: Maestro, Visa and MasterCard. The cards are accepted wherever you see the relevant logo.
UK prepaid credit cards offer something a little different to the usual plastic as you do not need a bank account, and more often than not, you will not need a credit check either. This means that consumers that usually have difficulty accessing electronic payments can now use a prepaid card, rather having to allow less convenient payment methods to suffice.
A safer alternative for travel
Most of us are quite au fait with visiting the Post Office or other currency exchange to hand over our British pounds for another currency or traveller's cheques. However, carrying large sums of cash abroad makes tourists an easy target for criminals, and if you lose it, you don't have a backup. This is why traveller's cheques were introduced as they offer a guarantee if the cheques are lost or stolen. However, there has been a significant decline in their use in recent years.
Travel prepaid cards are an excellent alternative to both foreign currency and traveller's cheques because they are specifically designed for use abroad, reducing the fees involved. Consumers can load their travel prepaid card with holiday cash in the UK, then use it like a credit or debit card abroad for transactions or cash withdrawals. The other advantage is that if the card is stolen, the risk of fraud is greatly reduced as the card is not linked to any personal information or bank account.
A more convenient payment method
Prepaid cards have been designed to be just as convenient and flexible as other forms of plastic, which is why there are so many ways to load cash onto the card. Most UK prepaid credit cards allow you to have your salary automatically loaded onto the card. The card can also be topped up online or with cash in certain branches or Post Offices. Some prepaid cards even allow you to load them using your mobile phone. Prepaid cards do not have any credit facilities so consumers do not need to worry about going into debt or using up money from the bank accidentally -- making prepaid cards the perfect solution to budgeting.
Just as with a bank account or any other financial product, it is important to compare prepaid cards before applying for one. Prepaid cards are available from so many different places, and all have different features, fees and charges, as well as rules about where they can be used, how they can be loaded and so on. If you compare prepaid cards before jumping in head first, you can be sure that you have chosen the card best suited to your needs.
Published: 23 September 2011
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