Swipe – left or right? Ask most young people today and they prefer to tap and go. Cards: credit cards, debit cards, and forex cards are becoming a thing of the past in an era where fintech firms are racing to offer e-wallet and mobile payment options.
So, why did the Reserve Bank of India (RBI) announce the RuPay Prepaid Forex Card as a new payment option for Indians travelling abroad? What is it? How is it different from your credit card, and why should you get one?
Why Should Young People Get A Credit Card?
"Most young people are credit or liquidity constrained. It means that they do not have enough income to support huge expenses particularly if they want to make durable purchases like a phone or a laptop. Credit card helps them with insured buys. You can report to the dedicated bank which has issued your credit card if these products are damaged or lost in transportation."Professor Sumit Agarwal, Low Tuck Kwong Professor of Finance at the National University of Singapore
According to a report released by the World of Statistics on International Labour Day, the average monthly salary in India is below ₹50,000 or roughly $600. A decent laptop alone will eat up half of your salary. Combined with rent and utility bills, one is clearly not left with much to shell out for these products.
What Are The Advantages Of A Credit Card Over E-wallets Or Debit Cards?
Now, when you are trying to buy something from an online shopping portal, you would have noticed multiple payment options. UPI, net banking, Amazon Pay, debit or credit cards, and several other Buy Now Pay Later schemes that surface regularly depending on what is hot in the market. Why would you choose a credit card?
A 30-day free float which is an interest-free loan for 40-60 days after you have made a purchase from your credit card.
You accrue points on credit card transactions and cashbacks depending on the credit card provider.
You also collect rewards and discounts across travel and hospitality. Think of access to airport lounges with complimentary meals and Wi-Fi.
It also allows you to build a credit history early on. This is important for your future financial transactions. You want to buy a dream house or a bike. A neat credit history and a strong credit score are crucial to get favorable deals from banks.
How Debit Cards Help Build Financial Discipline?
When using a debit card, you are essentially spending your money instead of taking advantage of the money in the market. E-wallets also often do not offer such long-term competitive benefits. But this also means that you are rational in your spending habits and tend to buy things with an eye on your bank balance.
How To Avoid Credit Card Debts?
"Most people are behavioral and not rational in their spending spree. They think that they would not get into the debt cycle. But half of the American population is living under credit card debt. If you are not making timely payments, you end up paying an interest of about 20-24% on these purchases. Credit card providers often also tempt young people to buy credit cards through reward cards which give 2-3% discount offers on purchases. But many shelve an additional 50% more on products or services they do not need."Professor Sumit Agarwal
No, you do not need to cancel your OTT subscription, give up on the latest season sale or nick your travel plans.
The key is to build financial discipline, exercise control, and learn to make timely payments. Keeping track of your monthly expenses, a regular glance at your bank account statements, and allocating a rough budget to the indulgences of the month can also help.
What Is A Forex RuPay Prepaid Card And How Is It Different From Your Credit Card?
Overseas travel is still a privilege despite what your IG finfluencers tell you. Especially, in the post-pandemic world where flight ticket prices are touching the skies and when the inter-currency exchange rates kick in.
A Forex card is a prepaid travel card that you can load with foreign currency. Think of it as your prepaid phone SIM card with roaming. Treat your Forex card as another shiny plastic card that looks like a credit or debit card but it is prepaid and you can pay for your expenses in a local currency abroad - Dollars, Euros or Pound Sterling. You can even withdraw local cash from an ATM. Experts believe they can be a marginally cheaper alternative to a regular credit or debit card.
"The RuPay Card will be reduce the interchange fee that most credit card providers will have to pay to Visa and Mastercard. It is about 2% on an average. The Indian interchange fee is around 75 basis points (bps). So, it is one-third of what the traditional cards charge. But, having said that, since it is a prepaid card, then, you are still losing the advantages of a 30-day free float."Professor Sumit Agarwal
The RBI is yet to announce further details around securing a Forex card and terms and conditions around its usage. In the meantime, getting a credit card without having a credit score is a simple process. How? Find out in our next story.
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)