Paper or plastic?
As pressure mounts for government agencies to reduce costs while improving services to constituents, state and local officials are turning to reloadable prepaid debit cards to replace checks when disbursing funds such as child support payments to residents. Today, all 50 states distribute food assistance on reloadable electronic benefit transfer (EBT) cards.
According to Waltham, Mass.-based Mercator Advisory Group, a payments industry research firm, federal and state programs disburse $189 billion annually in child support, tax refunds, workers’ compensation, Social Security, unemployment compensation and insurance, government agency payroll, and transportation. Local governments are allocating the funds on bank-issued, network-branded prepaid debit cards, which, similar to EBT cards, can reduce administrative processes and costs, including producing and distributing checks and replacing lost or stolen checks. It is also less costly, over time, to issue a card one time versus distributing monthly checks. The cards can be reloaded by the agency at any time, with no service charge to the recipient of the funds.
Seventeen state agencies already have inked deals to replace paper checks with prepaid debit cards for child support payments, a significant increase over the four states in 2004. In Georgia, more than 150,000 prepaid debit cards currently are used for child support and state payroll payments.
With prepaid debit cards, users can access funds at ATMs and buy items from merchants that accept payment cards, an option for those without bank accounts who often incur steep fees at check-cashing establishments. For example, in Georgia, the average fees for debit card use total $1.66 per month (primarily for ATM access) while the average check-cashing fees total $9 per month. Georgia cardholders also can pay bills without purchasing money orders, saving them an estimated $4 to $12 each month. Prepaid debit cards also offer protection if the cards are lost, stolen or used fraudulently.
Agencies can implement a reloadable prepaid debit card program by contacting a payment card-issuing financial institution. Agency officials should gather as much information from the issuer as possible about its current offerings and develop a program plan that includes attainable goals and identifies key internal personnel who will ensure the goals will be reached. Agencies also should establish specific organizational parameters such as whether cardholders will require a personal identification number or signature to access funds.
Once the decision is made to estalish a prepaid debit card disbursement program, officials should help agency employees understand its function and benefits using agency-wide announcements. In addition, the agency should develop a plan to announce the program to recipients and determine the support needed for a successful rollout and enrollment. Employees must be ready to answer any questions recipients may have about the program.
When the program has been deployed, the agency should continue to work closely with its issuer to recognize ongoing support needs such as metrics and reports that can evaluate program effectiveness and identify improvements. As the program matures, prepaid debit cards will save money and streamline and improve service delivery to constituents.
The author is vice president of Global Public Sector Business Development for Purchase, N.Y.-based MasterCard Worldwide.