Using Prepaid Cards for Claims (and other)
Payments
American Association of State Compensation
Insurance Funds
Super Conference Presentation
October 2 – October 5, 2012
Rick Pileggi
Senior Vice President
Retail Payment Solutions
U.S. Bank
Topics
z
Prepaid Defined
z
The Role of Prepaid in the Government Sector
z
The Market
z
Prepaid Benefits
z
Trend Data
z
Prepaid Opportunities
z
Summary
z
Questions
A prepaid card is a card that can be loaded with
value by you or another person, company or
institution. The card can then be used to pay bills,
make purchases at shops, by phone, over the
Internet and get cash
Payment Card Models
Credit products draw funds from
a credit line.
Debit products draw funds from a
checking account.
Prepaid products draw funds from a pre-funded account which can be funded from a variety of sources.
Pay Later Pay Now
Pay Before
Closed Loop
Typically accepted by a single
merchant/group of merchants. Examples include dept. store gift, phone, and transit cards. Also called “retailer-branded” or
“proprietary” prepaid cards.
Carry acceptance mark of a
national/international payment network such as Visa, MasterCard, American Express, or Discover. Some ATM/EFT networks also offer prepaid card products. Functionality depends on card application.
Network Branded
4
Major Prepaid Models
Branded
Unbranded Semi-Open Loop
(Branded or Unbranded)
General Purpose Card
Payroll Card
Gift Card
Government Benefits Franchise Card
EBT
FSA Benefit Card Shopping Center Card Gift Card
Phone Card
Transit Card
Gift Card
Prepaid Cards
Funds sitting in an individual or more commonly, a financial institution’s pooled account
Two models, endless variations:
• Open Loop: Full usage at a multitude of acceptance locations (limited or completely open)
• Closed Loop: Card that works at a single merchant
6
1. Requires limited consumer information to open 2. No credit check required
3. Money usually sits in a financial institution's pooled account
4. Can be funded by the person using the card, another person, a company or institution
5. Similar functionality to credit and debit card
except that only money previously loaded on the card may be spent
6. Usually not directly attached to a checking account or line of credit
7. Can be available through non-traditional distribution channels
Prepaid Account Attributes
The Prepaid Opportunity Can Be
Categorized into Three Broad Verticals
Public Sector
Public Benefit & Welfare programs
Emergency assistance &
disaster relief
Pension, Social Security Travel & cash
management Payroll, incentives
Corporate
Payroll
Incentives & rebates Healthcare & insurance Meal vouchers
Business travel
Corporate purchasing
Source: BCG 2010 Market Sizing Report, May 2010 research commissioned by MasterCard
Consumer
Consumer reloadable Travel
Online Campus Remittances Open loop gift
Projected 2017 Global Open Loop GDV
8
Global $274 B $328 B $238 B
U.S. $ 84 B $196 B $163 B
Canada $ 5 B $ 8 B $ 2 B
Prepaid Card Segments
Prepaid cards cover a very wide variety of payments use cases
Employer to Employee
• Payroll Cards
• Healthcare Reimbursement Cards
• Incentive Cards
• Per Diem Cards
Employer to Employee
•
Payroll Cards
•
Healthcare Reimbursement Cards
•
Incentive Cards
•
Per Diem Cards Business to Consumer
• Insurance claims
• Rebates
• Store Refunds
• Promotions
Business to Consumer
•
Insurance claims
•
Rebates
•
Store Refunds
•
Promotions
Merchant to Consumer
• Consumer Reloadable
• Gift Cards
• Youth Cards
• Travel Cards
Merchant to Consumer
•
Consumer Reloadable
•
Gift Cards
•
Youth Cards
•
Travel Cards Government to Consumer
•Tax Payments
•Workers Compensation
•Unemployment, Child Support Payments
•Veteran's Compensation Government to Consumer
•Tax Payments
•Workers Compensation
•Unemployment, Child Support
Payments
•Veteran's Compensation
Overview – Credit vs. Debit vs. Prepaid
10
Product
Attribute Credit Debit Prepaid
Source of Funds Line of Credit
Funds in DDA/Current
Account + Optional Overdraft
Funds Loaded into Separate Prepaid
Account
Branding Network and Bank;
or Private Label Network and Bank Network or Private Label, Sponsor
Authentication
PIN or Signature (determined by
network not by product)
PIN or Signature (determined by
network not by product)
PIN or Signature (determined by
network not by product)
Issuer Losses Credit Risk – High Fraud Risk - Low
Credit Risk – Low Fraud Risk - Low
Credit Risk – Low to None
Fraud Risk – Low ATM Access Generally (but
lightly used) Always Varies by Program
U.S. Market Data
The U.S. prepaid market is expected to grow rapidly across all segments, especially public sector cards
Consumer
U.S. Prepaid Total GDV
$ Billion; CAGR %
2009
Estimate 2017
Projection
2009 Estimate
2017 Projection
U.S. Prepaid Open Loop GDV By Sector
$ Billion; CAGR %
Ideal alternative to paper checks
Card is not limited by geographic or recipient demographic considerations
−
Universal acceptance at 28 million locations worldwide
−
Universal eligibility, simple, convenient and easy to use
Allows for 100% direct deposit participation using standard ACH capabilities
Increases efficiency and reduces expenses
Reduces or eliminates check processing expenses and related workload
Eliminates hassles of dealing with lost or stolen checks
Issuer is responsible for card replacement, fraud, escheatment and customer service
Greatly reduces fraud
End to end card program support
Higher recipient satisfaction
Allows people to participate in direct deposit
Makes receiving payments easier and cheaper
Enhances perception of agency as being forward thinking and expense minded.
NACHA studies have indicated that it costs $0.50 to $2.00 to issue a paper check
Benefits to State/Agency/Dept./Company
Makes receiving payments easier & cheaper
No trips to the bank or costly check-cashing services
Fast and reliable; no waiting for a check in the mail
Instant access to funds once deposited
Increases safety and security
No need to carry a lot of cash; convenient POS and cash access
Unlike cash, a lost/stolen card can be replaced
Zero liability fraud protection
Saves on potential expenses
Reduces the need to purchase money orders to pay bills
Use for re-occurring payments, such as utilities
No check-cashing fees (estimated at 2% - 7% of check total)
The OCC estimated that a person receiving $12,000 annually would pay $246 in check-cashing fees – Prepaid Trends
Benefits to Cardholder
Prepaid Card Trend Data
46 States have a Child Support prepaid card program & 41 have Unemployment
States continue to add programs where check payments can be replaced by a card, i.e. Workers Compensation, Dept of corrections, Retirement funds, Athletic Stipend, etc.
Prepaid card usage continues to grow…particularly in the General purpose category
Cautious consumers
DDA declines/turndowns
Generation Y
Key markets include unbanked, underbanked, under 21 (Gen Y)
Prepaid strength lies in the diverse application as a payment option and an account tool…transfers, bill payment….financial mainstream
As demographics change, traditional paper-based environments move to prepaid options – incentives, rebates, healthcare, government disbursements
DDA fee schemes are being reintroduced into mainstream
Gen Y…86 % use text messaging, 50% use mobile browsers, 23% use mobile
banking
The Role of Prepaid
Displace Cash, Coupons, Certificates and Vouchers
If your Agency, Department, or Group are issuing checks, coupons, certificates , or
vouchers to individuals, there may be a Prepaid solution that can help you reduce or even
eliminate these costs
Prepaid Opportunities
z Workers Compensation or Disability – Do you have the need to pay any type of Workers Comp or Disability Insurance payments? Are you still issuing checks?
z Cards can be single load or reloadable
z Cards can be loaded daily, weekly, monthly, etc. to individual cardholder via Direct Deposit (ACH)
z Card can be used anywhere Visa/MC are accepted including ATM and Bank Branches z Reduces expenses associated with issuing checks including reconciliation, mail, fraud,
and escheatment
z State regulated industry with no federal standards for claim disbursements
7 States expressly permit payment using prepaid cards in accordance with statutory or regulatory requirements – Arizona, Florida, Louisiana, New Hampshire, Ohio, Oregon and Texas
3 States expressly permit payment using electronic funds transfer (EFT) in accordance with statutory requirements – Arkansas, Georgia, and Wisconsin*
4 States where administrative agency has taken position that payment using prepaid cards is permitted – California, Massachusetts, Mississippi and Pennsylvania (provided certain conditions are met)
16
Prepaid Opportunities
z Corporate Rewards – Do you ever need to give a special reward to an employee for retirement, anniversary, etc.
zSingle Load Corporate Reward Card
z Cards are purchased and then given to employee. Card can be used anywhere Visa/MC are accepted. (No ATM or cash access)
z Corporate Rewards cards are continually thought of as a great way to reward and employee. They can purchase what they want.
z Housing Authority – Do you have the need to pay any type of Housing Authority subsidies? Are you still issuing checks?
zReloadable Card
z Cards can be loaded with consumers tax refund to individual cardholder via Direct Deposit. Card can be used anywhere Visa/MC are accepted
z Reduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment
Prepaid Opportunities
z Payroll – Are you still issuing paper checks to your employees because they are not able to be on Direct Deposit?
z
Reloadable Payroll Card
z Another form of Direct Deposit. Follows the same NACHA rules as your current
employees who are on Direct Deposit. Card is reloadable and can be used anywhere Visa/MC are accepted
z Reduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment
z Department of Corrections (Prison Release) – Are correctional facilities still handing out cash or checks when inmates are released?
z
Single Load Instant Issue Card
z Cards are issued when the inmate is released and card is loaded with $ funds that the inmate is due. Cardholder activates card and can use anywhere Visa/MC is accepted z Reduces expenses associated with handling cash or issuing checks
18
Don’t forget paying anyone employed during the Summer for special programs
Prepaid Opportunities
z Child Care / Child Support – Are you still issuing paper checks for any Child Support or Court Ordered Child Support?
z
Reloadable Card
z Cards can be loaded daily, weekly, monthly, etc. to individual cardholder via Direct Deposit. Card can be used anywhere Visa/MC are accepted
z Reduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment
z Temporary Assistance for Needy Families (TANF) – Do you currently make TANF available in your location? Do you currently pay this by cash or check?
z
Reloadable or Single Load Card
z Another form of Direct Deposit if reloadable. Single load cards can be funded via a funding account at the Financial Institution. Card can be used anywhere Visa/MC are accepted
z Reduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment
Prepaid Opportunities
z Unemployment (typically State level) Benefits – Do you have the need to pay any type of Unemployment benefits? Are you still issuing checks?
z
Reloadable Card
z Cards can be loaded daily, weekly, monthly, etc. to individual cardholder via Direct Deposit. Card can be used anywhere Visa/MC are accepted
z Reduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment
z Pension/Retirement Benefits – Do you have the need to pay any type of Pension or Retirement benefits? Are you still issuing checks?
z
Reloadable Card
z Cards can be loaded daily, weekly, monthly, etc. to individual cardholder via Direct Deposit. Card can be used anywhere Visa/MC are accepted
z Reduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment
20
Prepaid Opportunities
z Tax Refunds – Do you have the need to pay any type of Tax Refund? Are you still issuing checks?
z
Reloadable Card
z Cards can be loaded with consumers tax refund to individual cardholder via Direct Deposit. Card can be used anywhere Visa/MC are accepted
z Reduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment
Prepaid Opportunities
z Other Possible Prepaid Card Opportunities
z
Book Store Buy Back
z
Emergency Medical Transportation
zRecycling
z
?
22
Summary
Reloadable Single Load
Payroll X
Department of Corrections X
Child Card/Child Support X
TANF X X
Workers Compensation X
Disability X
Corporate Rewards X
Unemployment Benefits X
Pension/Retirement Benefits X
College University X X
Tax Refunds X
Bookstore Buy Back X
Emergency Medical Transportation X X
Recycling X X
Housing Authority X
Other X X
Open Loop Prepaid Card Opportunities
