Community Developments Online
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Community Developments Investments

Fall 2004

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For ongoing payments, plastic outperforms paper

A photo of a credit card

It’s expensive for the state of Oregon to prepare, print, and mail nearly 80,000 unemployment checks every week, and it’s costly for the thousands of recipients without bank checking accounts to cash their checks at check-cashing stores that charge fees of up to $10 per check. There has to be a better way — and there is.

Earlier this year, working with U.S. Bank, the state began issuing prepaid debit cards to unemployed workers who request them. The state saves on mailing costs, recipients get their money sooner, and cardholders can use their Visa cards to make purchases just about anywhere — including online, where cash
won’t work.

Prepaid debit cards are a powerful tool for financial institutions working to help state governments and private-sector employers cut the costs of issuing paper checks for ongoing payments. And debit cards are an excellent way to reach customers who may not have access to traditional banking products.
Multiple benefits
Prepaid debit cards work well with programs that allow an employee or benefits recipient to choose between direct deposit or check disbursement. And moving from checks to prepaid debit cards eliminates the expense of issuing checks as well as the costs of reissuing lost or stolen checks, recovering losses from fraudulent checks, and cutting off payments when checks go uncashed. The cardholder, aside from no longer having to depend on check-cashing stores, obtains all the benefits of a fully functional Visa card, which is usually out of reach for the unbanked.

U.S. Bank is one of the largest issuers of reloadable Visa-branded prepaid debit cards in the United States, and currently has products in three distinct areas: government disbursements, payrolls, and insurance payments.

The U.S. Bank ReliaCard is used to disburse ongoing state payments, such as child support and unemployment insurance. Later this year, U.S. Bank will also make the ReliaCard available for Temporary Assistance for Needy Families (TANF) programs.

Iowa, Colorado, Washington, and Minnesota currently use our cards for child support payments, and Oregon, as previously noted, uses them for unemployment payments. U.S. Bank currently has approximately 100,000 reloadable prepaid cards in force in the government disbursement market, with three more states planning to join the ReliaCard program in the next few months. Savings are significant: Iowa reports saving more than $420,000 per year in postage alone.

We market the U.S. Bank AccelaPay to employers seeking to shift employees to direct deposits. As with the ReliaCard program, benefits include eliminating the expenses associated with issuing paper checks, lost/stolen check re-issuance, fraud loss, monthly reconciliation, and escheatment responsibility. Cardholders benefit from improved access to their funds. More than 60 companies have switched already to AccelaPay.

Examples of CRA
Development Services

• Providing electronic benefits transfer and point of sale terminal system to improve access to financial services such as by decreasing costs, for low-or moderate-income individuals; and

• Providing other financial services with the primary purpose of community development, such as low cost bank accounts, including “Electronic Transfer Accounts” provided pursuant to the Debt Collection Improvement act of 1996, or free government check cashing that increases access to financial services for low-or moderate-income individuals.

• Offering international remittances accounts, combined with low-cost accounts that increase to financial services for low-or moderate-income individuals.

In the insurance market, we issue a Visa-branded card for an insurer making long-term disability payments, and we are evaluating other opportunities.

We anticipate significant portfolio growth because of the clear benefits to consumers as well as our government or corporate partners. The inconvenience and cost of check-cashing is eliminated, and the card can be used anywhere Visa debit is accepted and at ATMs to withdraw cash.

How does it work?

Participants learn about the program and enroll through the state (or employer or insurer), which then submits the enrollee’s information to U.S. Bank. We then issue a personalized Visa debit card embossed with the cardholder’s name and mail it directly to the cardholder.

Once the account is activated, the state can begin to put funds on the card. Card funding (“loading”) is facilitated via the standard automated clearing house (ACH) banking process with an ABA routing number and mutually agreed-upon identification number specifically for the cardholder. Once the card is loaded, the user has immediate access to the funds anywhere Visa debit is accepted, or at an ATM. We mail a monthly statement to the cardholder with detailed information on how and where the money was spent. Account information is also available 24/7 on U.S. Bank’s ReliaCard and AccelaPay Web sites.

Some states and employers have decided to mandate direct deposit of distributions, either to a traditional checking/savings account or to a prepaid debit card, while other states and employers are offering prepaid debit cards as an option. Either way, it’s important to help consumers understand how to use the card. We work closely with states and employers to develop educational materials and training for cardholders. When disbursers will no longer be issuing checks, the education process starts well in advance of the issuance of cards.

Each cardholder receives comprehensive usage instructions in the package containing the card. Information is also available on some states’ Web sites (as well as on U.S. Bank’s ReliaCard and AccelaPay Web sites). We work with our state and employer partners to develop marketing materials that will encourage enrollment in the card program. Additional information is provided on the card statement that is mailed directly to the cardholder each month.

Lessons learned

One of the real benefits of the card, we have discovered, is that cardholders become much less reliant on cash after a month or two. They realize that they do not need to visit an ATM often to get cash because they can use the card for everyday purchases — and the detailed monthly statement can help them budget by giving them a better handle on where their money is going.

As with any new service, continual cardholder education is key to the success of the program. That is why we work closely with the states and employers on an ongoing basis to reinforce the benefits of the card and to communicate information, such as where the card can be used and how the cardholder can avoid fees.

Somewhat to our surprise, we have learned that it is not only the unbanked who are electing to enroll in the ReliaCard or AccelaPay program. Many cardholders also have traditional checking or savings accounts, but use the card as a budgeting tool to keep certain payments separate from other family funds. Some AccelaPay cardholders use their cards as a forced savings tool for vacations, holiday gifts, or other spending. ReliaCard customers report that having a separate funding and spending vehicle for child support is one of the primary benefits of the card.

A major benefit is that cardholders can use the card to make purchases at any of the millions of merchants that accept Visa debit cards worldwide. That’s especially important to many users who have never had such a card before. With the card, they can now make purchases — and keep track of them — at grocery stores, home improvement centers, department stores, discount stores, even fast food restaurants, and via the Internet or phone, which is almost impossible without a credit or debit card.

U.S. Bank is committed to bringing more consumers into the banking mainstream. Prepaid debit card programs, such as ReliaCard and AccelaPay, are making that goal a reality, and will be part of our portfolio for years to come.

For more information, contact Gaye Crandall at (651) 205-2567 or