O2 moves into money with pre-paid card
More than 20 million O2 customers are to benefit from two new pre-paid cards from NatWest that are free to use and aim to help people manage their money.
The Visa cards represent O2's first foray into personal finance, and are largely aimed at young people, many of whom might be unable to get credit cards because of their age or credit histories.
Pre-paid cards allow users to load up money, which can then be spent at shops and other outlets that accept Visa transactions, or to withdraw money from cashpoints. They are a useful tool for people who need to budget, as it is impossible to go overdrawn and there are no interest charges.
Helen Page, managing director of marketing and innovation at NatWest, says: “In the current climate, NatWest is more committed than ever to developing innovative solutions to help customers connect with their finances.”
Both the cards will be available to O2 customers from August, and can be used in the UK and abroad, as well as over the internet. Customers can also receive real-time balances via text.
While both cards are suitable for people who need to budget, these are also aimed at two different audiences: the first is suitable for people who want to control their spending, while the second is aimed at younger users unable to get a credit card.
1. Cash manager
The first card, called Cash Manager, is designed for people who want to budget by keeping their diposable income separate from the essential cash in their current accounts, for rent, mortgage repayments and other regular direct debits.
Money can be loaded onto this card either through regular transactions or online, which can then be used in the same way as a debit card. Only money put onto the card can be spent, and there are no charges for using it.
2. Load & Go
This card is available to people aged 13 and over, and allows parents to load it with money over the internet, in O2 shops and at PayPoints. While it can be used to withdraw money from an ATM and in shops, there are restrictions on the type of outlets where it can be used – gambling websites, for example, are blocked.
O2 will contact the parents of anyone aged under 16 who applies for this card. It can only be loaded with up to £1,800 a year.
Pre-paid cards are still a relatively new innovation, and while they offer many benefits, take-up is still low. However, O2 and NatWest hope that the joint offering will beef up appetite for these types of cards, especially as there are no fees to pay.
Joanne Garcia, head of credit cards at Confused.com, says the problem with many pre-paid cards is that there are numerous fees to pay, many of which are often hidden.
For example, some might charge you to top-up money online while others have inactivity fees. According to uSwitch.com, someone on a budget of just £200 a month would have to pay as much as £141 a year just to spend money on some of the worst pre-paid cards.
For this reason, Garcia welcomes the fee-free aspect of these new pre-paid cards: “O2 and NatWest are delivering a fantastic innovation, and we hope this will encourage more competition.
“The Load & Go card, which is aimed at children aged 13 and over, will help educate and ensure that financial control is learned from a young age and young people won’t have to worry about carrying and losing cash.”
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.