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AGA report finds government prepaid cards offer numerous advantages

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The Association of Government Accountants recently released a report on government use of prepaid cards, concluding that such programs offer a number of advantages to governments and those who receive payments on a prepaid card rather than by check.

According to the report, governments — both state and federal — have adopted prepaid card programs for benefit payments largely for cost savings they offer in comparison to check disbursements. Other drivers include the opportunity to provide easier access to cash for recipients, as well as increased security.

The report, co-sponsored by global payments technology company Visa, shows that benefit recipients also enjoy substantially reduced costs with prepaid cards compared to the other option most unbanked benefit recipients would otherwise have – check cashing. The AGA report says it is possible for cardholders to use some government prepaid programs at no cost, though it estimates an average cardholder cost of 0.03 percent of the payments received. The report compares this to average check cashing fees, which range from one to four percent.

The report advises that governments should consider replacing any remaining check-based payments with prepaid card programs in order to realize substantial savings for taxpayers, as well as benefits for payees.

“The AGA report is absolutely right that the main impetus for governments at the federal and state level to adopt prepaid card programs has been cost savings,” Andrew Gillen, the vice president of the U.S. public sector for MasterCard, said. “For example, the report mentions the $1 billion in savings Treasurer Rosie Rios projected from the ‘Go Direct’ initiative, which includes the Direct Express Debit MasterCard program.  When you can combine savings for taxpayers with better service for benefit recipients, you have a really powerful solution.”

“The report mentions EBT cards, which is where this movement to card-based payment options really got started as far back as the 1980s,” Nancy Collins, the group president of State Enterprise Solutions at Xerox, a leading provider of government card programs, said. “The cards have been remarkably successful and have saved the federal and state governments an enormous amount of money. They’ve also reduced any number of potential headaches. Just imagine what it took to produce, safeguard, distribute, process, collect, and then destroy paper food stamps; they were essentially the same as currency. Once governments saw how EBT could reduce administrative costs and offer improved access for benefit recipients, it was natural to turn to card-based programs in other areas.”

Collins and Gillen singled out two areas in the report they thought deserved clarification.

“The report indicates that a major reason providers are able to offer these programs at no cost is due to interest the they earn on card balances,” Gillen said. “I think everyone understands that interest rates are quite low these days. And balances typically do not sit on these cards for very long. Benefit recipients access them very quickly. There really isn’t much interest there.

“The report also cites overdraft fees on these cards. That’s not a particularly relevant issue for these programs. There might be one or two child support programs out there that still have them, but overdraft fees on government prepaid programs are virtually extinct. Overall, fees on these programs tend to be few and low.”

“As the AGA report notes, most states are already using prepaid cards for both unemployment compensation and child support,” Collins said, looking to the future of government prepaid programs. “We certainly believe that will continue. And, there’s a lot of room for this area to grow. For example, future card solutions could be developed for health and wellness agencies.”

Gillen cited the addition of financial education features as a positive development in government prepaid programs.

“We’re now beginning to see a focus on using the prepaid platform to drive financial capability for cardholders, as in the recent announcement of the rollout of PayPerks in the Treasury program,” Gillen said. “It will be interesting to see if state governments follow suit.”

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