The study noted that prepaid cards, like the MasterCard Worldwide-branded general-purpose reloadable prepaid card used in the U.S. Department of the Treasury's Direct Express program for the electronic disbursement of Social Security and other federal benefits, can help the approximately 17 million unbanked adults in the United States (or about 8.2 percent of the population) receive payments.
Indeed, the researchers believe prepaid cards and other alternative financial products are the vehicles that will lead to the future of benefit payments. "The relationship of technology and financial inclusion will shape the potential of government payment cards and other tools that look different from traditional bank accounts," the report said. "This is the next generation of payment cards and financial inclusion products."
According to the researchers, government payments 2.0 involves a nexus of three interlocking mandates: increase choice, functionality and financial capability. Presently, benefit recipients have no choice in fees and features when they opt to get federal benefits loaded onto prepaid cards. The paper said the government could contract with several financial institutions, instead of just one, to issue multiple benefit cards that come with basic features, but are given the leeway to provide additional features and flexibility to cardholders.
For example, one program might offer more monthly ATM withdrawals while another could offer a card with a linked savings account. "The additional features – and any accompanying fees – would be driven by consumer needs, and consumers could choose among the range of card providers and programs," the report said.
Meanwhile, the researchers advised that the government could expand card functionality by adopting the "one card, one account" strategy. For example, instead of unbanked individuals having benefits deposited onto one card and federal tax refunds on another card, the accounts can be combined on one card.
Finally, the report defines financial capability as a "set of consumer behaviors that lead to tangible improvements in financial health." Prepaid cards can facilitate those behaviors through proper financial management messaging and reporting. Text message reminders to check credit reports can accompany the monthly load of funds onto the cards, the report said.
The researchers noted that the federal government may be better at providing benefits than helping improve the financial behaviors of recipients of those benefits. "Payment recipients may be better served, with more choices and access to a wider range of financial products, if governments 'row' rather than 'steer,'" the report concluded.
In this model, private industry would "steer" by responding to recipients' needs with a variety of programs while government would "row" as the source of payments. The researchers said an additional benefit of this approach might be a "faster product innovation cycle than would be available under a more traditional government payment contract which typically lasts five years or more."
The report can be accessed at www.cfsinnovation.com/content/double-duty-payments-cards-doorway-greater-financial-health.
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