Using Prepaid Cards Effectively in the Public Sector

Just like companies in the private sector, governmental agencies around the world have become increasingly driven to become more efficient. As the demands on the public sector to respond to economic, social and infrastructure challenges continue to increase, finding innovative ways for national, state, or local governments to serve their constituencies has become an imperative.

Governments all over the globe are looking at prepaid programmes to create a more efficient delivery channel as they work to modernise their social sector programmes. One use of prepaid programmes in the public sector is the deployment of card-based programmes to the sailors and marines in the US Navy allowing them to buy anything they need aboard ship without carrying cash and to access their money anywhere in the world.

Prepaid cards are a proven and effective tool to do so. There are numerous success stories in which prepaid cards are used to disburse government benefits such as unemployment or disability compensation, child support, or pension payments. These programmes are well suited for prepaid cards since they tend to be built upon high volume, regularly scheduled payments. Prepaid cards can be especially effective in instances where beneficiaries do not have a bank account – a concern not only in emerging countries where the unbanked percentage of the population is very high but also in established economies where 20% or more of given populations may not have access to a bank account due to factors such as poverty, immigration status, lack of education or cultural assimilation. If these individuals have a prepaid card in their name, not only can they access their benefits in a safe, secure manner, they can also begin to integrate into mainstream banking services, the economy and society.

How do Prepaid Card Programmes Work?

A government agency or entity loads funds electronically onto a card account provided by a bank issuer for the beneficiary. The recipient can access their funds as soon as they are posted to the account by using an ATM or at point-of-sale. The government reloads the account at stated intervals dictated by the programme. The advent of applications using mobile commerce as well as biometric authentication tools are driving technological advances that will take the traditional card based programme into exciting new directions.

The benefits of using a prepaid programme are significant. The government can maintain control over the ways in which funds are used yet can eliminate the inherent administrative costs associated with cheque processing and the fraud risk of sending them by mail. The recipient has a safer, more secure way of accessing and carrying their funds rather than using cash and has immediate access to their money. Moreover, the recipient now has an account with which he or she can begin to build savings and access other banking services. The ability to safely and securely save money is transformational to any society since it’s an enabler to home ownership, education, and migration.

Challenges

There are also real challenges for banks to help the public sector deliver benefit programmes that cannot be overlooked:

• The regulatory and legal landscape in a country may create hurdles for non-domestic providers that can be difficult to overcome.
• In emerging markets where serving the unbanked is a priority, the local infrastructure (roads, electricity, telecommunication networks, etc.) may make provisioning a card programme a challenge unless there is a known brick and mortar organisation or outlet to assist.
• Cultural attitudes and financial literacy rates may vary dramatically from country to country or region to region requiring a significant investment in training, education and on-the-ground support at the beginning of any programme.
• The investment horizon and success metrics for prepaid programmes in the public sector look different from those in the private sector. These tend to be programmes with a high volume of accounts, each with a lower margin. However, once begun, these programmes can have long lives. It requires a different lens to project and evaluate these programmes than many private sector companies may be accustomed to doing.

Given the explosive growth rates for the adoption and use of mobile phones in places like China and Africa where the number of people with phones often dwarfs the number with bank accounts, the use of mobile or wireless applications for receiving and remitting funds may be very relevant once the basics of establishing and using an account – prepaid or otherwise – can be communicated.

Conclusion

There is significant opportunity to take the lessons from global programmes and translate them into the initiatives underway in many other countries. It’s imperative for the public and private sectors to collaborate to develop relevant, sustainable programmes for their constituencies. By bringing in the right government agencies along with the right technology, infrastructure and payment providers, the public sector can achieve not only a more efficient benefit distribution process but can modernise their entire economic and social framework.