The Government Wants to Know Why Companies are Getting Out of Prepaid

by Ben Jackson 0

The U.S. Department of Agriculture is trying to figure out why there are only two companies left that want to bid on offering government benefits prepaid cards. J.P. Morgan Chase announced last year that it was getting out of the business.

As states have pushed vendors to reduce fees that generate revenue, they have also sought additional features to prevent fraud. Some states, for example, now require photo identification on EBT cards. But those kinds of security features increase the cost of producing the cards. Between efforts to waive fees and add new antifraud measures, said Kurt Helwig, president and CEO of the nonprofit Electronic Funds Transfer Association, “I don’t know that a number of companies see a compelling business case.”

A compelling business case is precisely the problem. A company that wants to work with the states to offer prepaid cards to benefits recipients finds itself needing to deal with an entirely new set of rules and regulations for each state. Add to that a long sales process and a constant push for a program that is essentially free to both the cardholder and the state agency, and you have a product that is unsustainable.

On top of all of that, there is a political maelstrom that companies risk stepping into when offering welfare services. With 2016 approaching, the rhetoric, and the legislative activity, will likely heat up.

The USDA’s Food and Nutrition Service can be commended for asking the question, but the agency will need to understand that the cost/benefit questions need to be answer from multiple perspectives including the recipient’s, the state government’s, the federal governmen’s, and the providers’ perspectives.

This Request for Information (RFI) seeks to obtain input from EBT stakeholders and other financial payment industry members and interested parties, regarding options and alternatives available to improve the procurement and current operational aspects of EBT. In this document, FNS has posed various questions to prompt stakeholder responses. We intend to consider and follow up on the alternatives and suggestions that appear to be most viable from both a technical and a cost/benefit standpoint.

Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group

Read the full story here
Read the request for information here

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