Overview: "Financial Connection"

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By Pamela Jordan, EFT Strategy Division

The Department of the Treasury's Financial Management Service (FMS) is poised to launch a new debit card program in Spring 2008 with a national rollout to be completed by the end of summer. FMS selected Comerica Bank as its financial agent to issue the debit cards to Social Security Administration (SSA) and Supplemental Security Income (SSI) recipients. Treasury plans to expand the program to include additional benefit payments in the future. The Direct Express card will offer social security beneficiaries the opportunity to receive their payments electronically even if they do not have a bank account. Cardholders will have 24/7 access to their money at automated teller machines (ATMs) and will be able to make purchases at any retailer that accepts Mastercard. Cardholders can access their account information by telephone and internet, make purchases over the internet, and receive cash back with no fee at retail locations.

FMS selected Comerica Bank as its financial agent to issue Direct Express cards due in part to its years of experience with prepaid card services for state government benefit recipients. Based in Dallas, Texas, Comerica Bank is among the 20 largest banking companies with locations in 7 of the largest 11 cities. Teaming with Comerica Bank is ACS State and Local Government, Inc., a wholly owned subsidiary of Affiliated Computer Services, Inc. (ACS), who will process the MasterCard branded cards.

Debit cards eliminate the cost of cashing a check and are a safe and reliable means of receiving a payment. The Federal Reserve Bank (FRB) 2005 payments study published in the Spring 2005 Federal Reserve Bulletin titled, "Trends in the Use of Payment Instruments in the United States," validated the growing popularity of debit cards. According to the study, "Among electronic payments, debit card transactions grew the most in terms of number, from 8.3 billion in 2000 to 15.6 billion in 2003. The growth in debit card payments accounted for more than half the growth in electronic payments over the period." The goal is to reach all Federal check recipients with the Direct Express debit card. By converting every unbanked Federal check recipient, Treasury estimates savings of $48 million annually, making Direct Express a more efficient payment option for Treasury than checks, which cost $.88 more to issue.

During 2007, FMS sponsored a one-year debit card pilot with its financial agent, JP Morgan Chase (Chase), to SSA and SSI recipients in Chicago and rural Illinois. In the pilot, as will be the case in the national rollout, Treasury incurred no bank fees beyond the costs to make the ACH payment to the bank to fund the card, except for minimal Treasury costs such as for direct mail, materials and other marketing. The average cost to beneficiaries to obtain cash using the Direct Express card during the pilot was $3.87 and the average cost to use the debit card was $5.27 but it is expected that with lower cardholder fees offered by Comerica Bank and a comprehensive education campaign on how to avoid fees, these average costs should decline dramatically. In contrast, SSA and SSI recipients, on average, pay approximately $6.00 to cash their checks, while some pay $20.00 or more according to research recently conducted by FMS.

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