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Last Updated: Saturday, 4 November 2006, 14:51 GMT
Pre-pay: An expensive way to spend?
By Bob Howard
BBC Radio 4's Money Box

More and more companies are launching pre-pay cards which you can use on the internet and in shops without having a bank account.

A woman paying for something in a shop
Cash is loaded onto the card which can then be used to pay for goods

The pre-pay card is different from a credit or debit card because you can only spend the money you have put on the card.

The cards are designed to appeal to people who want to control their spending or to those who do not want to give their bank card details over the internet.

They are accepted at most retailers that take Mastercard and Visa and can be charged up at Post Offices and other outlets.

And pre-pay cards are appearing thick and fast.

There are around two million people in Britain today without bank accounts being excluded from a lot of financial services
Clinton Manning, The Mirror
Unique Card and the 3V Voucher have just been launched to compete alongside existing pre-pay cards like Quidity and Cashplus.

Quidity is The Daily Mirror's card.

The paper's business editor, Clinton Manning, told BBC Radio 4's Money Box that it offers the chance for people without credit and debit cards to buy over the internet where you cannot use cash.

"There are around two million people in Britain today without bank accounts. They are being excluded from a lot of financial services. There are a lot of good deals to be had on the internet."

Pricey option?

While pre-pay may bring internet bargains to those without credit or debit cards, the privilege does not come for nothing.

Some providers charge around 10 to acquire the card. You normally have to pay to use any cash machine and with some you pay either a monthly fee or a fee per transaction.

That could amount to about 60 per year if you were a regular user.

If you have one of these cards and you lose it, that's it, it's gone
Louise Hanson, Which?

But Rich Wagner, chief executive of Advanced Payments Solutions - the company behind the pre-pay card Cashplus - said consumers do not mind if all the charges are clearly set out.

"Customers do not like unexpected fees. Our product charges a subscription cost - you know what you're getting," he told the programme.

There are other things consumers should be aware of when using pre-pay.

Louise Hanson from the consumer group Which? warned that the costs can add up.

In addition, she said you do not get the same automatic protection you get with other types of card.

"When you buy products with a credit card you're covered by the Consumer Credit Act, which means if you buy something over 100 and it goes wrong then you can also make a claim against the credit card company," she said.

"If you have one of these cards and you lose it, that's it, it's gone, because it's cash basically and you can't get it back."

Business expenses

Pre-pay is not just for high street or online shoppers.

Some companies are starting to see the advantages of pre-pay in getting money to their employees.

Sandra Alzetta is senior vice president for Visa Europe which offers the facilities for around a dozen pre-pay schemes.

The corporate applications are immense
Rich Wagner, Advanced Payments Solutions
"For expenses, companies are now saying 'here's a card which has been pre loaded for you for five days of expenses, use this however you want to'. It's also being used instead of petty cash," she told the programme.

Some companies are also using it to pay casual workers. Rich Wagner said that reduces the need to withdraw large sums in cash.

"The corporate applications are immense," he said. "Where you have maybe a hundred employees and half of them don't have a bank account, that's quite a lot of cash to put in your brief case."

With more and more of these cards being launched, the companies behind them obviously predict pre-pay will be big business. Just how popular they prove with consumers is yet to be seen.

BBC Radio 4's Money Box was broadcast on Saturday, 4 November 2006 at 1204 GMT.

The programme was repeated on Sunday, 5 November 2006, at 2102 GMT.

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