Thursday, July 10, 2008
The U.S. Department of the Treasury's Financial Service (FMS) has implemented a prepaid card on which Social Security payments are loaded. The Direct Express card is a MasterCard Worldwide-branded debit card designed to be an electronic alternative to paper check remittance, allowing recipients to get their monthly funds in a more timely and efficient manner.
According to the FMS, about 4 million Social Security and Supplemental Security Insurance recipients are considered unbanked consumers – those without access to traditional bank accounts. Paper check remittance can be delayed by regular mail delivery, and when the recipients receive their checks, they then have to cash their payments at check cashing businesses, which often charge onerous handling fees.
But by loading government benefits onto prepaid cards, payment delivery is almost instantaneous, and no fees are applied. Because the cards are MasterCard-branded, cardholders can make purchases, pay bills and withdraw cash at automated teller machines and retail locations anywhere the MasterCard brand is accepted for payment.
Just like traditional debit cards, Direct Express cards are PIN-protected, Federal Deposit Insurance Corp.-insured, and subject to consumer protection regulations, namely the Electronic Funds Transfer Act, also known as Regulation E.
Prepaid cards for the conveyance of government benefits are also seen as a way for the government to save money by reducing administrative costs. The FMS stated that it costs the U.S. government 98 cents to issue each paper benefit check, as opposed to 10 cents per electronic payment. A switch to card-based payments could potentially save the federal government $3.52 million annually, the FMS said.
The FMS selected Comerica, a Dallas-based Fortune 500 financial services company and subsidiary of Comerica Inc., as the bank issuer for the government benefits. Affiliated Computer Services Inc., also of Dallas, is the processor.
Initially, the program was set to begin in April 2008, with the cards available to 600,000 benefit check recipients in at least four southern states. According to the FMS, benefit recipients in 11 states have received information about the Direct Express card and can sign up for it by calling a toll free number or visiting www.USDirectExpress.com .
The FMS' goal is to go national with the program by the end of summer 2008.
Boston-based consultancy Mercator Advisory Group predicts over $5.6 billion will be loaded on open-loop, network-branded government benefit cards in 2008. That number is expected to skyrocket to $31.2 billion by 2010.
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