Just junk cash, gift with style

Birthday parties, special occasions and gifting events are incomplete now without gift cards. Gift cards and their predecessor — prepaid cards — are fast becoming popular today due to their convenience quotient. They are not only a substitute for carrying cash, but an ideal way to be used at many places.

What are prepaid cards?

A prepaid card, as the name suggests, is a type of card that has been loaded with a pre-determined sum of money. Prepaid cards can be loaded from as low as Rs 500 and have an upper limit of Rs1 lakh. These cards are issued by various banks in accordance with RBI regulations and guidelines.

Prepaid cards serve the basic objective of limiting cash transactions in the system and it can be used in merchant outlets, against cash withdrawals as well as online. Most prepaid cards come with a validity period of one year, although a recent RBI guideline in December 2014 has allowed banks to issue prepaid cards that are valid to up to three years.  Prepaid cards allow secure transactions without carrying cash and remove the fear of unnecessary spending as the card holder can it only use till the money preloaded in the card is exhausted.  

What are gift cards?

A gift card is a type of prepaid card that can be loaded with any amount ranging from Rs 500 to Rs 50,000. It is can be used to swipe at selected brick-and-mortar stores and for online purchases. The growing popularity of gift cards have compelled banks to enter into agreements with various retailers and food joints, issuing dedicated gift cards that are functional only for their store or outlets. You can get gift cards issued by popular coffee chain shops or grocery retailers, allowing the card holder to shop exclusively from their store. There are also general purpose gift cards which are applicable across all merchants and counters.

The following are the distinguishing features of prepaid cards and gift cards.

Prepaid cards have a longer validity period compared to gift cards. A prepaid card is valid up to three years, while the expiry period of a gift card depends on the type of gift card and the merchant in case of a co-branded gift card. Some gift cards also come with the condition that they have to be swiped once only and with short validity.

A prepaid card works like just another debit card and you can use it to withdraw cash, or to make a purchase offline and online just like any other debit card. You can also check its balance at ATMs. A gift card on the other hand can be swiped only for a purchase in one of multiple stores depending on the card type. Cash withdrawal is not possible with most gift cards.

Prepaid cards can be reloaded and topped up, and therefore can be reused even after the balance exhausts. Gift cards on the other hand are for one-time or multiple usage but will be expired once the balance exhausts.
(The writer is the CEO of BankBazaar.com)