Prepaid and Stored Value Debit Card s

Document Sample
Prepaid and Stored Value Debit Card s Powered By Docstoc
					                                           DECEM B E R 5, 2 0 0 6

National Association of State Treasurers

Prepaid and Stored Value Debit Cards
The Growth of Debit Cards for Mainstream
Financial Access
                                                      Card Transaction Growth

 Growing
  consumer                                      25


                   Transactions (billion)
 Overcomes
  barriers to                                   10

  direct deposit
  - lack of bank
                                                     1999 2000 2001 2002 2003 2004 2005 2006
                                            CREDIT 14.2 16.9 18.4 19.7 21.1 22.16 23.5 24.2
                                            DEBIT 6.564 8.433 10.82 12.46 15.08 17.57 21.1 26.58

                                                 Data source: ATM & Debit News, September 21, 2006
Prepaid Debit Card Technology Alternatives

 Prepaid vs. Proprietary (Electronic Benefits
 Instant issue cash cards – single issue, small
  value payments
 Integrated chip (smart) cards
 MasterCard or Visa Branded Cards
  - Signature
  - PIN
Prepaid Debit Card Applications

 Unemployment Insurance
 Child Support
 Workers Compensation
 Retirement annuities
 Child care subsidies
 Payroll
Prepaid Debit Cards - Program Overview

   Prepaid debit card programs are designed to replace costly paper
    check payments

   Funds are deposited to the cards in the same manner as direct
    deposit - via the ACH network.

   Card provides recipients the convenience and security of a
    branded card product (Visa or MasterCard), but no credit is
    extended. Recipients have access to only the funds that have
    been distributed by the state agency.

   Cardholders have multiple ways to access their funds:
      Signature-based purchases (Visa/MasterCard)
      PIN-based purchases (Interlink/Maestro)
      ATMs (Plus/Cirrus, etc)
      Bank tellers (Visa/MasterCard)

   Customer service is provided 24 / 7 / 365 by live and multilingual
    representatives                                                  5
Benefits to Government Agencies
   Reduced check expenses
      NACHA studies estimate government entities spend $0.50 -
       $1.50 to issue physical checks
      No check production, delivery, reconciliation, or storage fees
      No check fraud or lost/stolen checks

   Universal eligibility

   More secure distribution of funds
      Card issuer assumes liability for card-based fraud
      Follows the same process and timing as direct deposit via the
       ACH network

   Enhanced recipient satisfaction

   Perception as governmental market leader

   Card issuer (bank) assumes escheatment liability of funds
Benefits to Recipients / Cardholders
   The “prestige” of a branded card

   A lower cost alternative to check cashing facilities

   No stigma attached to cashing assistance checks

   100% fraud protection for both the State and cardholders

   Monthly statements to track spending (both paper & on-line)

   Pay bills online or over the phone

   Make Internet and catalog purchases

   Budgeting and/or savings mechanism                            7
Marketing and Communications

 Two distinct marketing strategies:

    Optional direct deposit (into checking/savings account or prepaid debit
        Response rates better if solicitation pieces speak to direct deposit into
         either a traditional account or a card; as opposed to only a card
        Check inserts, direct mail, etc.
        On-going communications with recipients of paper checks (semi-

    Mandatory direct deposit (into checking/savings account or prepaid debit
        Recommend at least three mailings prior to card issuance
        Mailing 1 - Program introduction, direct deposit/card enrollment form
        Mailing 2 - “Last Chance”, must select either traditional direct deposit or
        Mailing 3 - “Your card is on the way” / “do not discard” message

Program Pricing

 Agency costs
  Typically limited to ACH-origination fees

 Cardholder fees - Can be a completely cost free program to
  No card issuance or monthly account fees
  Behavior that may result in cardholders being charged fees:
     Excessive use of ATMs or bank tellers
     Excessive use of live customer service representatives
     Expedited card replacement
     Overdrafts
Recommendations / Findings
Card Issuance / Implementation
  Issue cards in smaller batches (especially for mandatory direct deposit
       Customer service implications for both state agency and card issuer
  State agency must update database prior to card issuance to insure names
   and addresses are correct

Voluntary direct deposit program
 Moderate customer service liability for both agency and card issuer -- the
   recipient “applied” for the card
 Recipients rely on cash withdrawals early in the program, then migrate to
   POS as comfort level increases

Mandatory direct deposit program
 More substantial customer service liability for both agency and card issuer --
  some recipients may have limited experience with banks or bank card
 Notifying cardholders with a notice in the form of a check significantly
  reduces the need to reissue cards to people who were not expecting them
  (and may have simply thrown them away)

 Need to remain vigilant to prevent data loss
  leading to identity theft

 Prepaid Debit Cards Can be an Integral Part of
  Disaster Preparedness Programs

 Trend in states toward mandating all electronic

 Programs should not shift cost from agencies to
  payment recipients