PERSONAL FINANCE: DO YOU TRUST yourself with your credit card or are you inclined to lose the run of yourself and your limit at the drop of a hat? When asked this question recently, almost a third of us said they no, hardly much of a surprise when you look at the personal debt mountain left behind following the boom.
Our credit card debt is a fraction under €2.9 billion and while we seem to have tempered the splurge and are now putting more cash into our cards than we are spending on them, it will be a very long time before we can leave the mountain behind.
Pre-paid money cards, embossed with the Mastercard and Visa legends, are likely to become more commonplace over the next year and they might help us exercise some self control.
You can’t run up huge bills or inadvertently eat into your overdraft as you might with a credit or debit card and you’re not charged any interest. When you have the money, you can spend it, when you don’t you can’t. It is that simple. Online payment company 3V Transaction Services have long championed the virtual credit card but while the 3V is fine for buying off the internet, it has always lacked a tangible piece of plastic which people can produce in a restaurant or use at an ATM so has struggled to make much of an impression.
O2, on the other hand, is likely to make a much bigger impression. It has rolled out its prepaid money card and with one million customers already used to topping-up pay-as-you-go mobiles – not to mention a big advertising budget – it will almost certainly be able to position its card front and centre.
At the launch last month, the company’s chief executive Stephen Shurrock claimed the new money card would “appeal to customers who no longer want or don’t have a credit card – either because they don’t feel they will manage it well, or because they are not eligible for one.”
Unlike a debit card, he said, “a customer can’t unknowingly access an overdraft facility or spend money that they don’t have,” and he expressed the hope that it would bring “transparency, awareness and control to a customer’s spending habits which we know are the first steps towards gaining control over spend.”
The O2 survey indicated that the vast majority of Irish people – 85 per cent – were trying to be more careful with their spending since the recession. Incidentally, who, we’d like to know, are the 15 per cent who are not? The survey reported that 75 per cent said they would like to be in more control of what money they have and how they are spending it, while 70 per cent said they found it hard to keep track of change when they break a €20 note.
The company said that 82 per cent of those polled said a prepay money card would help them avoid getting into debt while 30 per cent of respondents who did not have a credit card said they did not trust themselves with one and 32 per cent believed credit cards were too expensive.
The reason why O2 is getting so involved in personal finance is not because it cares all that much about how we spend our money today (as long as we spend some of it on its mobile offerings, it’s happy enough) but how we spend our money tomorrow, when the cash cow that is mobile phone call charges dies.
Back in the good old days – for the mobile operators at any rate – consumers were fleeced with ridiculous charges for phonecalls, text messages and data services. With apps now allowing people make calls anywhere in the world for free and instant (and free) messaging replacing the text message, the companies that made hundreds of millions of euro off Irish consumers for more than a decade are worried.
The Holy Grail O2 is pursuing is the mobile wallet – a smart phone that can be used to make calls and pay for purchases. If it can position itself to the fore of the electronic wallet revolution that is thundering down the tracks then it has a chance of retaining a degree of relevance in 10 or 20 years time.
O2’s Spanish parent Telefonica, is even further ahead of the curve and has been trialling a technology called Near Field Communication (NFC) to allow people make purchases with their mobiles. Put very simply, the phones of the – near future will be in direct contact with people’s bank and credit card companies and when they hover over a device at a cash register, money will instantly leave a user’s account.
Telefonica carried out an extensive NFC trial in the Spanish resort of Sitges last year. Run in conjunction with Visa and La Caixa bank, the trial used Samsung smart phones. Some 1,500 consumers were give phones loaded with electronic Visa cards and allowed to make purchases at 500 shops which were given point-of-sale devices capable of handling payments. The trial saw increases in both transaction frequencies and amounts spent and was described as “highly successful among all the participants”. The phones and payment terminals are still in circulation and will be used on an on-going basis.
“The results obtained in Sitges reinforce the assumptions of the companies behind the project that mobile payment could be rolled out massively in Spain over the mid-term in the next three to five years,” the companies said.
Among the top-line figures emerging from the trial included the fact that 90 per cent of consumers issued with an NFC phone used it to make payments while 80 per cent of the merchants processed an NFC transaction. People mostly used their phones for micro-payments and 60 per cent of the purchases were less than €20. The most popular place the phone was used was in supermarkets at 57 per cent and restaurants at 14 per cent while the average age of people using phones to pay was 46.
It is not, however, anticipated that the technology will be rolled out this year or next and it is unlikely to be mainstream from at least three years and possibly a lot longer than that.
In the meantime O2’s money cards actually make sense – once you have money.
Pricewatch used the card last week and found it was accepted without a murmur in shops, restaurants and ATMs. The cards can be topped up via an internet bank account or in any O2 retail store or in over 1,500 Payzone outlets nationwide. Balances can be checked for free, via text message.
However, you still have to pay many of the fees associated with bookings when you use a Visa pre-paid card. Mastercard are also in the space and it has one key advantage over its main rival. It has a number of pre-paid cards in the market including the Expression card aimed at students and the Ruby card aimed at a wider audience.
When reserving seats on Ryanair flights online using the Ruby or Expression cards, consumers can avoid paying the €10 booking fee although the card does cost €12.95, which is substantially more than the O2 Money Card. Mind you if you make more than one Ryanair booking a year then it will save you money.
Pre-paid money cards are likely to become more commonplace in over the next year and they might help us exercise some self control.