Government Prepaid Card Programs Reflect Possibilities for the Industry as a Whole

Federal, state, and local governments haverecently sought to replace checks with prepaid cards for a varietyof applications and benefits disbursements. These card programsreflect the possibilities for the prepaid industry as a whole andshow how different applications can be combined for solvingproblems.

While the most commonly known examples are prepaid cards forSocial Security and unemployment benefits, these examples alsorepresent the most basic use of prepaid cards. Consumers use themto accept direct deposits and to spend the money theyreceive.

Programs like the military’s Navy Cash card show how prepaid cardscan be adapted to other uses. The Navy Cash card operates like apayroll card and provides funds to sailors whether they are in portor deployed at sea. In addition to their functions as a payrollcard, they also offer a chip function that allows sailors todesignate and spend funds on board ships at commissaries andvending machines. By doing this, the cards effective combine amulti-purse system and multi-factor payments.

The Supplemental Nutrition Assistance Program provides benefits tolow income people who need help affording food. The cards run on anindependent EBT system with their own point of sale terminals. Thefunds are locked down so that they can only be spent on food. Whilethis is an extreme example, it demonstrates how prepaid cards canbe used to direct spending.

Another example of this was the government’s digital converter boxprogram in 2008. This program gave people vouchers to purchase adigital converter box so that their analog televisions couldreceive digital signals. It was a Restricted Authorization Network(RAN) card that also directed spending and hints at how amanufacturer might be able to offer an incentive to get shoppers,or a certain subset of shoppers, to try their products.

As new government programs are developed and implemented theprepaid industry should observe how well they perform and whatkinds of successes they have versus the roadblocks they encounter.The government could become a concept tester for the rest of theindustry. Look for a report on government card programs fromMercator later this summer.