Fed charts prepaid's growth as benefit mechanism

In July 2013, the Federal Reserve Board gave its annual report to Congress on the state of the general purpose reloadable prepaid card sector as it relates to government benefit programs. The annual summary revealed that federal, state and local government offices reported disbursing more than $1 trillion in benefit payments in 2012, with 13 percent of those disbursals being accomplished via prepaid cards.

According to the board's report, the prepaid card providers for those programs collected over $504 million in fee revenue during 2012. Sixty-two percent of that revenue came in the form of interchange fees, while cardholder fees comprised the remaining 38 percent. The average interchange fee was 1.1 percent of the average purchase transaction value in 2012, which roughly equaled the interchange fee percentage on debit card transactions in 2012, the Fed found.

Additionally, the majority of cardholder fees (60 percent) came in the form of ATM cash withdrawal fees. Customer service and account servicing fees constitute the next largest sources of cardholder fee revenue, at 13 percent and 10 percent, respectively, the Fed said.

The report stated that the share of government disbursements facilitated with prepaid cards will continue to increase because several state and local government offices plan to add prepaid cards as a method for disbursing tax refunds and other payments in the coming years. The Fed added that nearly every state offers a prepaid card for child support, unemployment insurance and Temporary Assistance for Needy Families programs.

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