OCTOBER 25-26, 2012 | ST. LOUIS, MO.
Treasury Relations and Support Office
Federal Reserve Bank of St. Louis
Senior Policy Advisor
Office of Consumer Policy
U.S. Department of the Treasury
Public assistance and government payments providers are moving toward electronic payment instruments as a preferred method for delivery of benefits to their beneficiaries. The migration from paper-based to electronic payments is motivated by cost savings and efficiency for the government, as well as by enhanced security and reliability of the payment itself. Once the consumer has adopted the electronic delivery method (such as direct deposit or prepaid card), consumer satisfaction is generally high, and consumers are able to take advantage of enhanced convenience—including improved money management—over past check-cashing options.
- The Federal Reserve, acting as agent of the U.S. Treasury, is concluding a multiyear campaign to motivate federal benefits recipients (those receiving Social Security, Supplemental Security Income, veterans' payments and other federal benefits) who receive payments via paper checks to receive them via electronic payments.
- Treasury's "Go Direct" campaign began with a marketing research effort in 2004. Early consumer research revealed that there were three common barriers to conversion to electronic payments among federal benefits recipients: 1) lack of motivation (inertia); 2) lack of desire (emotional attachment to check, lack of understanding or genuine resistance); or 3) lack of ability due to mechanical barriers (no bank accounts). The campaign addressed each audience in various phases and with multiple solutions, including education, marketing and product development aimed at the unbanked.
- Since the campaign began, the percentage of recipients receiving their benefits electronically has gone from 78.9 percent to 92.6 percent, resulting in the overall reduction of paper checks by 7.6 million each month.
- By March 1, 2013, all federal benefits recipients will be required to receive their benefits electronically via direct deposit to a financial institution or to a Direct Express Debit MasterCard.
- Among the populations receiving federal benefits, the SSI population has been the most receptive to receiving payments via the prepaid debit card. As a population, they are generally younger and have a sense of pride carrying a MasterCard-branded payment card.
- To help understand and increase financial access and inclusion among federal beneficiaries of public assistance programs, Treasury has also studied the use of prepaid cards among families who use them to receive public-assistance benefits. In a series of studies among families receiving TANF benefits via prepaid cards, Treasury discovered that recipients value the cards for their ease of use in general, such as using ATMs cash'free and using grocery stores for free access to cash.
- In a second finding among Treasury's study, two-thirds of participants reportedly did not have bank accounts but were previously banked. Of these, all indicated they wanted to come back into a banking relationship one day, once they had money, but reported they had bad experiences or relationships in the past.
- As a third theme among TANF recipients receiving benefits via prepaid cards, users described the cards as useful and transparent money management tools. In their words, they stated that they couldn't get into trouble using the cards, and they knew what they were getting into.
- When it came to saving, TANF recipients using prepaid cards were able to find creative ways to save—whether it meant storing cash under the mattress or loaning money back and forth among friends for short-term credit needs.
- An important element for encouraging savings among TANF recipients was in the perception of asset limits. There is a common perception that people are penalized for asset limits of $500, when in reality, asset limits are often much higher—sometimes as much as $2,000. People are getting misinformation through the grapevine. Education and information-sharing should be done around true asset limits to overcome misperceptions and encourage savings.
"Can't we just get the agencies together to negotiate and put the benefits together on a single card?"
QUESTIONS THAT REMAIN
- Will the government be successful in moving everyone over successfully to electronic payments by the March 2013 deadline?
- Will other financial institutions break through the limited-option card product pilots and offer a competitive product?
Other Breakfast Roundtable session notes:
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