Using Prepaid Cards for Claims (and other) · PDF fileUsing Prepaid Cards for Claims (and...

Using Prepaid Cards for Claims (and other)

PaymentsAmerican Association of State Compensation

Insurance Funds

Super Conference PresentationOctober 2 – October 5, 2012

Rick PileggiSenior Vice President

Retail Payment SolutionsU.S. Bank

Topics

Prepaid DefinedThe Role of Prepaid in the Government SectorThe MarketPrepaid BenefitsTrend DataPrepaid OpportunitiesSummaryQuestions

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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 LaterPay NowPay 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.

NetworkBranded

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Major Prepaid Models

BrandedUnbranded 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

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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

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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

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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

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Global $274 B $328 B $238 BU.S. $ 84 B $196 B $163 BCanada $ 5 B $ 8 B $ 2 B

Prepaid Card SegmentsPrepaid 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

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Overview – Credit vs. Debit vs. Prepaid

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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)


product)


product)

Issuer Losses Credit Risk – HighFraud Risk - Low

Credit Risk – LowFraud 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 %

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Source: BCG Prepaid Market Sizing Report, May 2010 Research, commissioned by MasterCard

Ideal alternative to paper checksCard is not limited by geographic or recipient demographic considerations − Universal acceptance at 28 million locations worldwide− Universal eligibility, simple, convenient and easy to useAllows 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 checksIssuer is responsible for card replacement, fraud, escheatment and customer serviceGreatly reduces fraudEnd to end card program support

Higher recipient satisfactionAllows people to participate in direct deposit Makes receiving payments easier and cheaperEnhances 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 & cheaperNo trips to the bank or costly check-cashing servicesFast and reliable; no waiting for a check in the mailInstant access to funds once deposited

Increases safety and securityNo need to carry a lot of cash; convenient POS and cash accessUnlike cash, a lost/stolen card can be replacedZero liability fraud protection

Saves on potential expensesReduces the need to purchase money orders to pay bills Use for re-occurring payments, such as utilitiesNo 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 Data46 States have a Child Support prepaid card program & 41 have UnemploymentStates 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 consumersDDA declines/turndownsGeneration 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 mainstreamAs demographics change, traditional paper-based environments move to prepaid options – incentives, rebates, healthcare, government disbursementsDDA fee schemes are being reintroduced into mainstream

Gen Y…86 % use text messaging, 50% use mobile browsers, 23% use mobilebanking

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

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?

Cards can be single load or reloadableCards can be loaded daily, weekly, monthly, etc. to individual cardholder via Direct Deposit (ACH)Card can be used anywhere Visa/MC are accepted including ATM and Bank BranchesReduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatmentState 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 Texas3 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)

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Corporate Rewards – Do you ever need to give a special reward to an employee for retirement, anniversary, etc.

Single Load Corporate Reward CardCards are purchased and then given to employee. Card can be used anywhere Visa/MC are accepted. (No ATM or cash access) Corporate Rewards cards are continually thought of as a great way to reward and employee. They can purchase what they want.

Housing Authority – Do you have the need to pay any type of Housing Authority subsidies? Are you still issuing checks?

Reloadable CardCards can be loaded with consumers tax refund to individual cardholder via Direct Deposit. Card can be used anywhere Visa/MC are acceptedReduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment

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Prepaid OpportunitiesPayroll – Are you still issuing paper checks to your employees because they are not able to be on Direct Deposit?

Reloadable Payroll CardAnother 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 acceptedReduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment

Department of Corrections (Prison Release) – Are correctional facilities still handing out cash or checks when inmates are released?

Single Load Instant Issue CardCards 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 acceptedReduces expenses associated with handling cash or issuing checks

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Don’t forget paying anyone employed during the Summer for special programs


Child Care / Child Support – Are you still issuing paper checks for any Child Support or Court Ordered Child Support?

Reloadable CardCards can be loaded daily, weekly, monthly, etc. to individual cardholder via Direct Deposit. Card can be used anywhere Visa/MC are acceptedReduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment

Temporary Assistance for Needy Families (TANF) – Do you currently make TANF available in your location? Do you currently pay this by cash or check?

Reloadable or Single Load CardAnother 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 acceptedReduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment

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Unemployment (typically State level) Benefits – Do you have the need to pay any type of Unemployment benefits? Are you still issuing checks?


Pension/Retirement Benefits – Do you have the need to pay any type of Pension or Retirement benefits? Are you still issuing checks?


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Prepaid OpportunitiesTax Refunds – Do you have the need to pay any type of Tax Refund? Are you still issuing checks?

Reloadable CardCards can be loaded with consumers tax refund to individual cardholder via Direct Deposit. Card can be used anywhere Visa/MC are acceptedReduces expenses associated with issuing checks including reconciliation, mail, fraud, and escheatment

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Other Possible Prepaid Card OpportunitiesBook Store Buy BackEmergency Medical TransportationRecycling?

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Summary

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Reloadable Single LoadPayroll X

Department of Corrections XChild Card/Child Support X

TANF X XWorkers Compensation X

Disability XCorporate Rewards X

Unemployment Benefits XPension/Retirement Benefits X

College University X XTax Refunds X

Bookstore Buy Back XEmergency Medical Transportation X X

Recycling X XHousing Authority X

Other X X

Open Loop Prepaid Card Opportunities

Questions

Using Prepaid Cards for Claims (and other) · PDF fileUsing Prepaid Cards for Claims (and...

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