Prepayment for service

Prepaid refers to services paid for in advance. Examples include postage stamps, Attorneys, tolls, transit cards like the Greater London Oyster card, pay as you go cell phones, and stored-value cards such as gift cards and preloaded credit cards.

Prepaid services and goods are sometimes targeted to marginal customers by retailers. Prepaid options can have substantial cost reductions over postpaid counterparts because they allow customers to monitor and budget usage in advance.

Unlike postpaid or contract based services, prepaid accounts can be obtained with cash. As a result, they can be established by people who have minimal identification or poor credit ratings. Minors, immigrants, students, defaulters, and those on low incomes are typical prepaid customers.

Recent statistics (OECD Communications Outlook 2005) indicate that 40% of the total mobile phone market in the OECD region consists of prepaid accounts. This service was invented by Portuguese provider TMN, while researching for a means to increase penetration of mobile technology by allowing anyone to buy a fully working (usually requiring a quick and simple activation process) mobile phone on any supermarket or electronics store. By removing the complications inherent to the contract system, this allowed the mobile communications user base to grow incredibly fast. In many countries this type of service became the predominant one, shortly after introduction, by providing both consumers and service providers with considerable advantages over the traditional method. In some countries, such as Italy or Mexico, market share of prepaid can be as high as 90%. In other countries, such as Finland or South Korea, the figure drops to about 2%.

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