UK customers do not understand prepaid card use in spite of heavy promotions

33% of UK consumers don’t know what a pre-paid card is, despite efforts to promote them as a solution to both debt and card fraud. New research released by TNS and VRL today also reveals that more than a fifth (23%) of people who are aware of them do not actually understand how they work.

Although there are more than 25 types of pre-paid cards on the market in Britain, only 12% of people have actually purchased one for their own or family use, and half of these people purchased it more than six months ago. Those who are using them mainly acquired the card to make online purchases (45%). In line with industry attempts to provide a safer alternative to debit and credit cards, others use the cards to budget more easily (24%), spend money abroad (20%) and to manage the money they give to their children (8%).

“It’s surprising that although the two biggest issues in the financial industry are debt and fraud, pre-paid cards are not being promoted as a simple solution to help combat both issues,” said Waheed Aslam, Vice President Global Financial Services at TNS. “Because pre-paid cards have no direct link to your bank account and do not rely on credit (only the money you have topped up with) the pre-paid card is an excellent way of paying for goods more safely and without fear of overspending, especially online.

A lack of awareness in the UK could also be due to the popularity of debit cards, and to the ‘credit’ culture we have got ourselves into, where we use credit to buy what we want, then pay back only what we can afford – prepaid cards have the power to reverse this situation.”

With so many firms looking to enter the personal finance market including mobile phone and retail firms, who arguably have a larger installed base of customers, it will be interesting to see the role that pre pay finance could play and how innovative their strategies really are.”

Although many of the pre-paid cards either have an initial fee or a monthly fee, most UK consumers are also unaware of these costs. Of those surveyed who hadn’t purchased a pre-paid card, just under half (46%) did not know what the standard charges were and a quarter (26%) assumed there were no monthly fees attached. More surprisingly, of those who had purchased a pre-paid card, nearly a fifth of people didn’t know what their monthly fees are costing them and 40% weren’t aware of paying any monthly fees.

The study, which is the largest ever undertaken on UK consumer awareness and usage of pre-paid cards, was presented at VRL’s European Prepaid Cards Summit, held in Rome from 12-13 November 2009. “Prepaid cards have become one of the world’s most dynamic and competitive payments markets”, said Hugh Fasken, Editorial Director at VRL. “While regulatory and cultural forces mean individual countries are at different stages of penetration, interest in prepaid across the world is booming.”

Now in its fifth year, Prepaid Cards Summit Europe provides analysis and intelligence on the European prepaid market. This year’s conference also featured speakers and case studies from across Europe, including Mattia Adani, Senior Adviser – Counsel of Experts, from the Italian Department of the Treasury. No more than 33 percent of registered delegates came from one country and globally 28 countries were represented.