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The Green SheetGreen Sheet

Thursday, May 6, 2010

Government streamlines payments with plastic

The government benefits sector of the prepaid card industry is experiencing massive growth. Mercator Advisory Group reported that the market for Social Security payments grew 11,000 percent in 2009 – the result of a large government expansion of the U.S. Social Security Administration's pilot program.

While that percentage increase may be anomalous, it is evident that the electronification of benefit payments is gaining speed. In February 2010, First Data Corp. signed an agreement with the Egyptian government to extend its food subsidies and pensions across the country.

"I think what you're seeing is a renewed focus on energy that First Data is putting into the governmental area," said Mark Putnam, Senior Vice President of the Prepaid Group at First Data. "And, obviously, there's quite a bit of growth going on in the governmental space right now."

Putnam said First Data is leveraging technological investments it has made in other verticals, such as the payroll card market, to expand its efforts in government payments. "You're seeing hyper growth right now as more employers and governmental state and federal agencies endorse payroll cards or electronic payments," he added.

Environment-wide benefits

According to a First Data white paper entitled Using Payment Cards for Lower Cost, More Secure Government Funds Disbursement, government payments put on plastic save on:

  • The costs of printing and handling paper checks
  • Fraud, theft and other problems associated with paper checks
  • The amount of paper waste and fuel expended in producing and distributing paper checks

Citing Mercator research, the report stated it costs the U.S. Department of the Treasury 98 cents to issue one paper check but just 10 cents to distribute those same funds electronically.

The report quoted Treasury Department statistics that 90 percent of all problems with Social Security payments occur with paper checks: lost or stole checks, fraudulently endorsed checks, and processing of inquiries concerning misplaced, damaged, stolen, misdirected and missing checks.

As for the environmental impact of paper checks, the report cited NACHA – The Electronic Payments, which pointed out that producing and delivering paper checks uses over 674 million gallons of fuel annually, while the burning of that fuel adds 3.6 million tons of greenhouse gases to the environment yearly.

Case studies

As examples of how prepaid disbursement cards benefitted organizations, the report showcased the Social Security program piloted in 2007. The pilot started with a few thousand recipients activating Direct Express cards. When it was rolled out fully in 2008, about 450,000 Social Security recipients signed up for the program. By mid 2009, over 500,000 had enrolled, and almost $1.5 billion had been loaded onto Direct Express cards.

The First Data Government and Education Task Force-issued report said state governments have also begun disbursing Temporary Assistance for Needy Families (TANF) funds on prepaid cards. Despite an overall reduction in the amount of TANF aid given out, the money loaded onto prepaid cards reached $15.6 million in 2008, a 4 percent increase over the previous year.

Citing Mercator, First Data noted that 21 states disburse unemployment payments via prepaid cards, with all of the largest states – minus California – taking part. Even the U.S. Navy uses the open-loop Navy Cash Card for paying its personnel at sea. The cards also have a closed-loop feature for the purchase of goods from stores and vending machines located on naval ships.

The U.S. Navy installation illustrates a main benefit of government payments put on plastic: organizational cost savings. First Data's report highlights that the Navy had to collect, count and redeploy $250,000 in coins for the vending machines on board the aircraft carrier the USS Harry S. Truman. By going to the Navy Cash Card, the vending machines are now coinless, eliminating substantial currency management costs.

Consumers on deck, too

From a consumer standpoint, the report said government benefit cards offer:

  • More convenience
  • Lower costs (compared to fees charged by check cashing businesses, for example)
  • Quicker access to funds
  • Access to services debit and credit cardholders enjoy (such as online purchasing)
  • Improved safety and security

"So we're providing a tremendous service to cardholders, as well as governments and other employers, helping them minimize fraud, helping them minimize their expense in cutting and distributing checks," Putnam said. "And then finally we're helping them go green." end of article

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