Monday, February 11, 2008
On Jan. 4, 2008, the FMS stated it had chosen Comerica from a pool of 15 financial institutions; Comerica was picked partly due to its experience as a prepaid card issuer for state government benefit programs.
Comerica is partnered with Dallas-based payment processor Affiliated Computer Services Inc. ACS will reportedly be the payment processor for the program. In January 2007, the FMS initiated the Direct Express card in a pilot program for Social Security and Supplemental Security Income benefit recipients living in Illinois. JPMorgan Chase & Co. was the card issuer for that program.
Starting in April 2008, about 600,000 benefit check recipients in at least four states – Texas, Louisiana, Oklahoma and Arkansas – will be able to receive benefit payments on prepaid debit cards. FMS' goal is to go national with the program by the end of summer 2008.
The beneficiaries of the Direct Express Card program are unbanked consumers, also known as the underbanked or underserved, who do not have access to traditional bank accounts.
Because the unbanked rely on the mail to receive paper checks, they are at greater risk of check delivery delays due to bad weather, natural or manmade catastrophes, and other problems such as lost or stolen checks, the FMS stated.
The FMS noted that 90% of problems associated with failure of Social Security payments to get to their intended destinations are linked to problems with the handling and delivering of paper checks, not direct deposits to bank accounts.
The benefit payments will be loaded electronically every month on Direct Express cards, giving benefit payees faster access to government funds. Using the open loop, network-branded prepaid card – a card Association has not been chosen yet – funds can be accessed at automated teller machines and financial institutions nationwide.
The cards can be used to make purchases at the POS. They will be PIN-protected, Federal Deposit Insurance Corp.-insured, and subject to consumer protection regulations, namely the Electronic Funds Transfer Act, also known as Regulation E.
Payments industry research firm Mercator Advisory Group predicted $31.2 billion will be loaded on network-branded government benefit prepaid cards by 2010, only topped by the $43.3 billion expected to be loaded onto prepaid payroll cards.
The FMS, meanwhile, estimated that 4 million consumers in the United States who receive government benefit checks today do not have bank accounts. Estimates of the size of the unbanked population in the United States range from 40 to 65 million. This represents from 10% to 20% of the total U.S. population.
"Direct Express represents a significant step forward in the evolution of federal benefit payments," said Judy Tillman, Commissioner of the FMS. "The explosive growth in the prepaid card industry offers an important opportunity for Treasury to give unbanked payment recipients secure, easy access to their funds, at low or no cost to the cardholder.
"We ultimately would like to see an all-electronic Treasury – with all the security, efficiency and cost savings that would entail. This card takes us closer to that goal by combining the best in payment innovation with sound public policy.
"If every unbanked federal check recipient signed up to use the card, it would save taxpayers about $44 million per year."
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