A movement is underway in California to reduce the ATM fees banks charge users of electronic benefits transfer (EBT) cards. The initiative to regulate California's EBT food stamp program, and reduce the financial burden on California's unbanked population, raises the potential for ISOs to generate revenue by partnering with more fee-friendly ATM network operators.
The California Reinvestment Coalition issued a report that said over $19 million in-state family assistance funds were eaten up by ATM fees in 2012. A state assembly bill, co-sponsored by the CRC and the Western Center on Law and Poverty, would restrict the amount of ATM fees financial institutions could charge food stamp recipients for accessing benefits funds.
The CRC's report, The $19 Million ATM Fee: How Better Banking Services Would Protect Our Public Investment in Families, said that 85 percent of ATM fees charged California's public assistance recipients came from the California Work Opportunities and Responsibility to Kids (CalWORKs) program.
"The current system leads too many people to pay fees just to access the very benefits they need to survive," said CRC Policy Advocate Andrea Luquetta. "It is a diversion of taxpayer dollars away from their intended use of supporting families. That's why we're calling on the state, banks, county offices and nonprofit partners to work together to address this pressing issue."
The CRC said roughly 450,000 California families receive funds via CalWORKs. According to the report, the average family receiving aid consists of one adult and two children, with the average grant of $510 per month working out to $6,120 per year.
In February 2014, California State Assemblyman Mark Stone, D-Monterey Bay, introduced assembly bill 1614 to reform the EBT program that facilitates CalWORKs payments. The bill would require that the program operate a 24-hour hotline, as well as a website, that would allow benefit recipients to access transaction histories at no charge. The bill also would require financial institutions and their partners to provide recipients with the ability to find out where they can use their EBT cards without incurring fees or surcharges.
The bill sponsors also seek to ensure CalWORKs users are charged minimal fees or no fees at all. Furthermore, the bill would mandate the formation of the Electronic Benefits Transfer System Consumer Protection, Financial Empowerment and Cash Access Fund that would apparently be funded by fines levied on EBT contractors that violate government contracts.
Bill 1614 is part of a package of needy families-focused bills introduced by Stone, who serves the California legislature as Chair of the Assembly Committee on Human Services.
The CRC report said Xerox States and Local Solutions Inc. manages California's EBT program and that Xerox uses the U.S. Bank-owned and surcharge-free MoneyPass ATM Network. The network is operated by U.S. Bank subsidiary Elan Financial Services. But the CRC report noted that only 9 percent of EBT transactions in California flow through MoneyPass. The majority of such transactions are processed via the ATMs of banks and independent operators, where usage fees can range between $2 and $4 per transaction, according to the CRC.
The CRC said the three largest banks in California, Bank of America Corp., Chase Bank and Wells Fargo & Co., made over $3.6 million, over $2.8 million and over $2.2 million, respectively, in fiscal year 2012/2013 on EBT fees. "Unfortunately, the fact that so many EBT users pay high fees to use bank ATMs reinforces the perception that banks are too expensive for CalWORKs recipients to use," the CRC said.
This perception may be to the advantage of ISOs that wish to venture into the prepaid card space. A 2013 white paper sponsored by Elan said ISOs can benefit from partnering with surcharge-free ATM networks to capture unbanked and underbanked consumer spending.
The white paper, How ISOs and merchants can benefit from serving the unbanked with surcharge-free ATMs, said surcharge-free ATMs can drive volume growth for ISOs. "Consumers will bypass more conveniently located ATMs to reach the ones that offer surcharge-free transactions," the paper stated.
The paper added that such networks still generate interchange for independent ATM deployers. "And the volumes at a surcharge-free retail ATM often experience a lift in transactions of 3-5 percent in the first year, which continues to increase yearly," the paper said. "Furthermore, a portion of that additional cash flow is then spent in the retail location, adding value for the retailers they serve."
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