Prepay market booms to beat fraud

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Against the backdrop of increased card and online fraud, European consumers are likely to turn their attention to pre-paid cards over the next five years, splashing out €75 billion in the process, according to new research.

Prepaid cards will be key in reducing the UK's billion-pound debt mountain and protecting against crime.

Earlier this month, statistics published by charity Credit Action revealed the extent of the problem, showing that average consumer borrowing for UK adults via credit cards, finance deal, overdrafts and unsecured loans has risen to £4,540 per person.

Figures from the Association for Payment Clearing Services (APACS) also show that card not present (CNP) fraud rose by more than £32 million in 2005, despite chip and PIN technology reducing overall card crime by £60 million.

By 2010, the public's fondness for these reloadable cards, as opposed to cash or credit cards, will rocket the number of prepay transactions from 150 million today to 2.3 billion. Similarly the number of cards of this type will increase from 40 million to 360 million.

The prepaid card market will grow at more than 100 per cent each year between now and 2010. Additionally, prepaid products like gift and Internet payment cards will generate almost 30 per cent and 13 per cent of total spending respectively, according to research published by European payment consultancy PSE Consulting.

PSE suggests that more than half of the predicted prepaid spend will be conducted using Visa or Mastercard-branded cards. It warned banks to drop their over-cautious 'wait and see' strategies and act quickly to avoid losing out to non-financial institutions.

"The European prepaid business segment is evolving rapidly," said Chris Reddish, group head of MasterCard Europe's prepaid unit, who co-sponsored the research with LINK Interchange Network Limited and First Data International.

"The report's findings provide essential guidance for banks, processors and other public and private sector players who are now developing a robust business case for the introduction of prepaid cards in Europe."

"The prepaid card market is one which we have always believed has significant growth potential which is borne out in the results [of this report]," added Karl Shields, planning and business development director at LINK Interchange Network Limited.

Just last month, UKash, which promotes the online use of online vouchers rather than credit, was certified by the Financial Services Authority as an electronic money institution (ELMI). The company, which is part of SmartVoucher Ltd, will now be regulated by the FSA as an approved e-money issuer, giving businesses and shoppers greater peace of mind when conducting online transactions.

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