Prepaid Cards and The Unbanked
Borrow a relative’s credit card. Have a friend pay. For those excluded from the formal financial system, paying online is more often a matter of finding the right proxy than finding the right tool. Innovations such as mobile wallets continue to expand access to electronic payments, but cards still dominate the digital realm, and for many, access depends on first finding someone willing to lend their card. That task may be especially difficult in Pakistan, where fewer than 14% of people own a debit or credit card.
Prepaid debit cards are one tool capable of expanding access to electronic payments. Depending on the capabilities of the card, they can be used for online or in-store purchases. They also do not usually require the user to own a bank account, which allows easier access to electronic payments through a more familiar and trusted form of payment — the plastic card. Prepaid cards are already used by two different segments of the population in Pakistan: low-income recipients of Government cash transfers and middle-income users of electronic payments.
UBL WIZ is one example of a mid-market prepaid card in Pakistan. Customers can visit a branch location, pay cash in exchange for a stored value card, and use it at any Visa or 1Link/MNET member location, including: ATMs, local merchants who accept cards, and most popular e-commerce sites. The product group actually includes three cards with varying credit limits. The customer pays PKR200 for the card, any applicable transaction fees, and for two of the cards, an internet session fee of PKR100 when using it online. Users must call UBL to get the cards temporarily activated for an internet session.
It is worth noting that activation for individual internet sessions isn’t a limitation unique to WIZ. Many full-fledged credit and debit cards in Pakistan require a second, temporary activation for use online. There is a long and storied history behind why this is the case but it boils down to consumer protection. Fraud concerns make banks reticent to allow cards to be used online.
WIZ and a handful of similar products have been around for years, but they are not exactly ubiquitous in the market. Customer fees may be partly to blame. It could also be the application process. Formalized Know Your Customer (KYC) requirements do not exist for prepaid cards. However, most banks appear to be playing it safe. The WIZ card requires a four page application, a copy of the applicant’s CNIC, proof of employment, and information on sources of funds before the card can be activated. These requirements make opening a traditional bank account only moderately more work. In fact, a Level 0 Branchless Banking account can be opened with fewer requirements and may work just as well depending on the needs of the customer.
There is, however, another market in Pakistan where prepaid has grabbed a stronger foothold. Government transfer programs like BISP are increasingly making use of stored value cards. Unfortunately, the cards are not typically Visa branded, so cannot be used for payment. Instead, they act only as a simple and secure disbursement channel, allowing recipients to get their cash from ATMs rather than Government offices. Even if these cards could be used more widely for payment, there still would not be sufficient use cases for the base of the pyramid. Those receiving Government support payments are not the same people shopping for furniture on e-commerce sites like Daraz.
However, as smartphone adoption continues to rise and innovations like mPOS (mobile point of sale) push card acceptance to smaller merchants, the opportunity will grow. Syrian refugees received prepaid debit cards for use in food markets as early as 2013. There is no reason a similar model could not work in Pakistan assuming the technology catches up.
So what is needed? For one, smarter technology. Innovations such as mPOS and smart-chip based credit cards require wider promotion in Pakistan. Small merchants should also be given greater incentive for local card acceptance, with the banks pushing into the SME market more aggressively. For those with the incentive to pay electronically but not the means, friction must be reduced within the payments system. Customer targeted fees should be replaced with revenue from cross-selling and merchant acquisition. KYC should be simplified to reflect the real use of these cards: plastic that acts like cash.
The use of prepaid cards in programs like BISP suggests these programs can be scaled effectively in Pakistan. Their use in local middle-income markets and in foreign poverty reducing programs suggests valid use cases exist across market segments. It will be a juggling act to balance prepaid card expansion with security and profitability, but for whoever finds the right rhythm, there is a market waiting.