Governments around the globe are finding ways to use prepaid debt cards to reduce their check processing costs. The Economist recently reported that in early 2009 the Pakistan government faced a challenge distributing aid to refugees in their Northwest Frontier and handed out, in one week alone, 230,000 cards to displaced families.
Visa reports that the governments of the Philippines, Brazil, Costa Rica and the Dominican Republic are supplying cards to over 800,000 families for aid subsidies. MasterCard is working with governments in Poland and Peru. In the United States, more than 38 states are currently distributing, or planning on distributing, prepaid benefits cards.
According to recent report to the congress on ‘Government Administered, General-Use Prepaid Cards’, in 2010 90 federal, state and local programs in 36 states issued 20 million cards representing transactions worth $34.8 billion. Several studies have predicted the prepaid cards growth to be more than 20% and government cards will be a significant part of the pie.
The cost saving opportunities found in the use of prepaid debit cards make them very attractive for government use. For instance, by implementing transit cards many government entities charged with managing mass transit systems have been able to reduce their overhead significantly. However, government use of prepaid cards is not without its challenges.
In many places, the switch from checks to prepaid debit cards has been met with skepticism, resistance and mistrust from the people being asked to accept this form of payment. Much of the push back has come from a public that doesn’t understand the difference between a credit and a debt card. There are complaints of excessive fees that spring from a lack of information and possibly too many restrictions placed on the cards. However, control of the programs and better education may be solutions to ease those complaints.
In our white paper Meeting the Challenges of Today’s Prepaid Market we looked at some of the challenges and opportunities in the general prepaid market segments. In this white paper we will focus on the opportunities and challenges faced in the government prepaid sector.