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
                                                30

 Growing
  consumer                                      25

  market

                   Transactions (billion)
                                                20
  acceptance
                                                15
 Overcomes
  barriers to                                   10

  direct deposit
                                                 5
  - lack of bank
  accounts
                                                 0
                                                     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
  Transfer)
 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
  benefits
 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
                                                                   6
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
     card)
        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-
         annually)

    Mandatory direct deposit (into checking/savings account or prepaid debit
     card)
        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
         card
        Mailing 3 - “Your card is on the way” / “do not discard” message




                                                                                       8
Program Pricing

 Agency costs
  Typically limited to ACH-origination fees

 Cardholder fees - Can be a completely cost free program to
   cardholders
  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
   programs)
       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
  products
 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)
Recommendations/Findings:

 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
  payment

 Programs should not shift cost from agencies to
  payment recipients