Over the past five years, the U.S. has experienced an average of $18 billion annually in natural disaster-related damages. Millions of individuals are impacted by natural disasters each year, facing financial challenges such as damage to homes, the need for temporary shelter, and the replacement of personal belongings and food.
With delays in funds distribution due to legacy payout methods and outdated processes, there has been a focus on the benefits of using prepaid cards for payouts.
One popular solution to help people recover is prepaid cards. In a recent PaymentsJournal podcast, Marchelle Becher, Business Development Executive with B4B Payments and Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research, spoke about how these cards have become an essential tool for addressing the needs of disaster victims.
Looking for Ways to Help
The Federal Emergency Management Agency (FEMA) has been considering changes in the way it provides financial resources for victims of natural disasters. Given the frequency of disasters, aid programs and funders are becoming more proactive rather than reactive.
“We’ve seen this past year that while we’re reacting to Disaster A, Disaster B is hitting,” said Becher. “And when you look at what type of recovery aid is needed, there’s a gap between those who need immediate aid for basic necessities versus the need for long-term assistance.” Prepaid fills the critical gap to deliver funds immediately to those without bank accounts and to those who don’t have access to their bank cards due to disasters.
FEMA recognizes that prepaid cards are well suited to meet the distribution needs when disaster strikes. Traditional payment methods can be slow and costly, unlike prepaid cards that can be issued immediately, reloaded securely and simplify the reconciliation and reporting process. The flexibility of prepaid cards allows funders to set spend controls (closed-loop) for specific merchant purchases or (open-loop) allowing recipients to make purchases based on their individual family needs. Funders and recipients prefer the convenience and security of reloadable prepaid cards or virtual cards that can be used immediately for online purchases or loaded to a digital wallet. And the process is very streamlined.
Unfortunately, survivors of natural disasters are left to navigate complex bureaucratic processes and the painful task of putting their lives back together. Dealing with the loss of property, emotional trauma and potential change in employment is compounded when trying to navigate the complex financial aid paperwork leading to delays in aid disbursement,” said Becher.
“It can be months to years before funds are ever in the hands of those that need them. Most recently we’ve seen it with Maui, where over a year after those fires hit, there are still people who haven’t received any funds.”
Tracking Information
Another benefit of prepaid cards is the ability to track how the funds are being used. These programs receive funds from many different organizations, and often, the funders want to determine how the money should be spent. With a prepaid program, they can restrict those funds to be used solely for food and housing, or make them inaccessible via ATM.
At the same time, the ability to track spending gives funders insight into the needs of those affected. They can see how much is being spent in each category, as well as how quickly the funds are being used—whether that’s within the first couple days or over a longer period of time. Features like dynamic spend control and just-in-time funding help organizations improve cash flow and reduce fraud risk.
“Accountability by both the recipients of the funds and also those who are in charge of distribution of funds is extremely important,” said Becher. “This information will help in the coming months and years as we continue to deal with natural disasters and build humanitarian aid programs to help. Based on the configurability of a program, the reporting and analytics can show that funds were distributed and used as intended.”
Doing the Prep Work
It’s important that the entities behind these humanitarian efforts do their research and speak to various payment providers. Having multiple payout methods is key, whether it’s cash from a cardless ATM or a prepaid card. It could even be an ACH payment into someone’s existing bank account, although in the wake of a disaster, even those who are employed may not have access to their bank account or phone.
“I would much rather be providing a digital or physical card that has protection as opposed to giving somebody cash,” said Becher. “We’ve seen that in desperate times people will harm someone for very little financial gain.”
Another advantage of physical prepaid cards is that they can be pre-ordered and handed out to individuals in need, or at locations where food, water, and medical assistance is being provided.
“The beauty of prepaid programs is that for the most part, you don’t incur any expense until you actually start issuing cards,” said Hirschfield. “You can have a stack of cards that essentially have no value on them, and they’re valueless until you actually load and activate the card. What that means is that you’re not sitting on liability of cards for months at a time waiting for a disaster. You’re ready to act quickly and put these programs into place, because you have that setup work already done.”
While there’s a great deal of regulatory oversight in funding and distributing these cards, it’s even more important to be prepared and ensure that everyone is following the rules, collecting the information needed, and making sure the programs are compliant. Organizations providing aid to disaster victims should address all of these concerns in order to do the most possible good for those in need.
“No one’s bringing these disasters on themselves,” said Becher. “We can’t lose people when there are solutions out there that can help bridge the gap, get them back into the workplace and continue rebuilding their lives.”
