Pay school fees through a prepaid card
Are you wary of exposing your bank account by paying online? Then prepaid cards might be the answer to your problem. With the Reserve Bank of India increasing the limit of such cards and allowing more institutions to accept these, this instrument could become more popular.
There are semi-closed prepaid cards issued by card payment companies. These can be bought over the counter or acquired by giving documents and filling KYC (Know Your Customer) forms. These cards are mostly used for specific purposes like travel payments (rail and air), telecom re-charging, utility payments such as electricity and gas.
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The others are open loop prepaid cards, which are issued only by banks jointly with payment companies such as Visa and MasterCards. An open loop card will be accepted at any outlet that accepts a debit or credit card payment and, therefore, has a wider scope. They also have higher limits, but require KYC rules.
The advantage is, there is no need to have a bank account to use a prepaid card and customers can make online payments even if they don't have a debit or credit card, says Naveen Surya, managing director, ItzCash, a card payment company.
A prepaid card also allows customers to control their spends. “You will not spend more than what is put or loaded on the card,'' says Surya. For high-value transactions, the company will verify the relevant KYC documents. The cards are also available at 60,000 franchisees of ItzCash. The difference is a franchisee offers the cards and services such as accepting payments through cards.
There are 16 companies in the country that hold a licence to issue such cards. One is Sodexho, which mainly caters to corporate customers. Airtel Money is another company which offers a similar product.
There is no cost to the customer for a semi-closed card. An open loop card has a one time cost of Rs 60 and Rs 20 from the second year onwards. Compared to this, to maintain a bank account (essential for a debit card) banks insist on a minimum balance. Similarly, on credit cards there is an annual fee which varies depending on the credit limit.
The limit on a semi-closed all-service card was till recently Rs 1,000, which the RBI has now increased to Rs 2,000. This card can be obtained with one identity proof, and upgraded to a semi closed essential services card with a limit of Rs 10,000, without KYC, and Rs 50,000 limit with KYC.
The RBI also allows the cards to be used for payment of school and college fees and government taxes up to a limit of Rs 10,000.
According to Abhijeet Bose, head, retail assets and strategic alliances, DCB Bank, prepaid cards can now be used by almost everyone as all salaried people have to pay income taxes. “School fees are paid either by cash or cheque. For this, parents often have to stand in queue at the bank's extension counter at their child's school. Now, it could be possible for them to sit at a terminal and pay online using a prepaid card," he says. DCB Bank is one of the two banks with whom ItzCash has launched the Freedom open loop card, the other being IDBI Bank.
Currently, the usage of DCB's Freedom Card, jointly with ItzCash, is seen more for grocery, dining and movie tickets, says Bose. “In case of internet banking, customers are afraid they might be exposing their entire bank balance to risk. In case of a prepaid card, this risk is capped,'' he says.
IDBI Bank has so far issued about 100,000 Freedom cards, says R K Bansal, executive director, retail. Such cards are useful in places where banks do not have a network, as the card holder does not need a bank account. The Universal Education Group, which runs school and colleges, accepts payment through post-dated cheques, says Jesus Lall, chairman and CEO.
“Credit card payment is not favoured by most educational institutions due to the transaction fee. We ask for a post dated cheque as we do not want the burden of following up for balance payments. Although I am not sure about the moralities of the prepaid card mode, any payment system which allows transparency and is cash-free, is welcome," he says.