MasterCard and the Treasury Bank the Unbanked

Ed Kountz | June 10, 2008, 04:26 PM

First introduced into the collective consciousness more than a generation ago, the idea of the “cashless society” remains elusive. JupiterResearch data confirms that consumers are using credit and debit cards for more small transactions--and carrying less cash than--than in the past, but cash and coins are hardly extinct.

Not for some years yet, at least. But the pace of the shift away from paper has been visible for years (if check volume numbers weren’t enough to drive it home, the reduction in the number of Fed check processing centers should be). No serious observer of the payments space can suggest that, all else being equal, check volumes would likely be anything more than a dead cat bounce (we’re not talking about Wall Street, but the metaphor should be clear). And, of course, the evidence mounts.

To wit—The U.S. Dept of the Treasury’s Financial Management Service announced this week that it was introducing a prepaid MasterCard for recipients of Social Security and other federal benefit payments. The product, the DirectExpress Debit MasterCard card, is being marketed as a safe, convenient alternative to paper checks, particularly for the unbanked.

See a list of FAQs describing the card at LINK

LINK

The product is being introduced in 10 states, and will be expanded nationally this summer. More than 4 million Social Security and Supplemental Security Income recipients who do not have bank accounts will be able to select the option, and will be able to circumvent the fees associated with check cashing facilities and the theft/ loss aspect of cash. In addition, the card provides a centralized access for key monthly payments, functioning along the same general lines as direct deposit to a bank account. Linking multiple payments (payroll deposits, SSI and tax rebates) on to a single card enables a de - facto direct deposit relationship, creating a bank-account in the pocket for those who haven't often had one before.

I’ve spoken often at conferences and to clients about prepaid payment products over the years, and have watched the introduction of Visa Buxx for youth, the Rush Card (and fee-addled knockoffs like the Usher Card) aimed at urban consumers, and subsequent types of prepaid products targeting every possible segment (a NetSpend card and a Visa Gift Card are both prepaid products, but targeting very different consumers).

While prepaid can be a harder business model to justify—with credit and debit now commonplace, the remaining stakes are across a number of pools—some attractive and large (the unbanked), and some less-well defined and arguably smaller (campus cards, which unless branded or linked may only be useful to a few thousand individuals), converting unbanked consumers from paper to plastic payments will reach a significant market, increasing security and reducing costs on both sides. While a number of states and other government entities have deployed similar products, this announcement is noteworthy because of its scope. And while not the first of its kind, neither is it going to be the last.