©2013 mastercard. proprietary and confidential ethan carr, mastercard alexander a. liu, bank of...

©2013 MasterCard.Proprietary and Confidential

Ethan Carr, MasterCardAlexander A. Liu, Bank of America Merrill LynchBill Seaver, Commonwealth of Massachusetts

Payment card technologies: Assisting state agencies and benefitting recipients

August 12, 2013


• World Beyond Cash

• Opportunities for Government Agencies

• Prepaid in Action

Agenda


Electronic Payments

World Beyond Cash

Ethan Carr, Business Leader – Public Sector


Source: Aberdeen Group, September 2009,, RPMG 2007

Checks remain the principal form of payment. Small and medium-size transactions dominate payment activity.

Transactions by Payment Type

64% 76%

29% 13%

6%4%3% 6%

Checks

Card

ACH

Wire

Transactions Below $2,500

Transactions Between$2,500 - $10,000

76% of CFOs cite “lower invoice processing costs” as top AP goal

However, paper checks:

Can cost $1 to $5 per transaction

Offer little float, minimal controls, no visibility

Make fraud and misuse harder to detect

Do not earn rebates

Landscape of Commercial Payments


$ Avg Ticket Size

There are a variety of card-based solutions in market designed to address A/P-based spend categories

HIG

H

Strategic Importance / Level of Control Required

HIGHLOW

Supplier-InitiatedPayments

Traditional (Plastic) Cards

A/P Cards/Ghost Cards

MasterCard Purchase Control

(ie, Single and Multi use accounts)

MasterCard Buyer Initiated Payment (STP)

Level of Automation

Payment Automation Continuum

$2,500

$7,500

Buyer-Initiated Card (BIC) Key Metrics:

• The average transaction size for MC BIC programs implemented is $12K, or 10x higher than avg Card-based AP program

• The average amount of spend per supplier captured on BIC is over 20x higher than traditional purchasing card

EFT/ACH

©2013 MasterCard.Proprietary and Confidential 6

Cash and checks have been losing share, both in terms of volume and transactions, to cards and other electronic payments

Electronic Payments now account for 63% of consumer payments in-store, online and to pay bills – up from 43% in 20012

And the trend is expected to continue: Purchase volume on checks dropped 22% from 2002 to 2007 and is expected to drop another 31% by 20121

1Source: The Nilson Report, November 2008, Issue 915, based on 2007 PCE of $9.710 trillion by U.S. Department of Commerce’s Bureau of Economic Analysis

2Source: Hitachi Consulting, Study of Consumer Payment Preferences, September 2008

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2002 2007 2012

Vo

lum

e (

$B

illio

ns

)

Checks Cash Cards Other Electronic

20%

25%5%

11%57%49% 45%

37%

43%51% 55%

63%

0%

20%

40%

60%

80%

100%

2001 2003 2005 2008

Electronic Paper

Paper vs. Electronic Payment Transactions


Prepaid is growing globallyOpen loop GDV growing at 22% CAGR to an estimated $822B in 2017

Canada$2 B

US$152 B

LAC$133 B

AP$54 B

Europe$149 B

MEA$46 B

Canada$19 B

US$421 B

LAC$15 B

MEA$3 B

Europe$28 B

AP$10 B

38%

2010 2017

CAGR

16%

37%

51%

27%

26%

Source: The Boston Consulting Group, January 2012

Projected Open loop prepaid growth 2010 – 2017


Payroll & Incentives

• Payroll• Incentives• Tax Refunds

Travel & Cash Management

Government Employee Benefit Social Benefit

Pro

gra

ms • Travel

– Infrequent travel– Per Diem– Relocation– Invitation travel– Other

• Purchasing

Pension & Social Security

• Pension benefits• Social Security

benefits

Public Assistance

• Child Support• Housing benefits• Unemployment• Jobs training programs• Commuter cards• Insurance claims• Immigrant cards

Emergency Assistance

• Disaster relief & emergency assistance

• Signature, PIN POS and ATM• Reloadable via secure PIN

based real time web based tool

• Activation via IVRU, Web or Customer Service

• Signature, PIN POS and ATM

• Personalized or non-personalized

• Reloadable• Activation via IVRU, Web or

Customer Service

• Personalized• Signature, PIN POS and ATM• PIN based security• Reloadable • Activation via IVRU, Web or

Customer Service• Zero liability for unauthorized

purchases*• MasterCard ATM Alliance• Multiple social benefits can be

offered on a single card (enhanced feature)

• Personalized• Signature, PIN POS and ATM• PIN based security• Reloadable • Activation via IVRU, Web or

Customer Service• Zero liability for unauthorized

purchases*• MasterCard ATM Alliance• Multiple social benefits can be

offered on a single card (enhanced feature)

• Signature, PIN POS and ATM• Instant issue cards that can be

mobilized within 24 hours (will require issuer/agency to maintain an inventory)

• MasterCard ATM Alliance• Reloadable• Activation via IVRU, Web or

Customer Service

Fe

atu

res

Aud

ien

ce

Legend Federal State & Local Non-Government Public Sector

* Conditions and exceptions apply, see http://www.mastercard.com/us/personal/en/cardholderservices/zeroliability

MasterCard Public Sector Solutions – At a Glance


2011 FDIC National Survey of Unbanked and Underbanked Households1

• 8.2 percent of US households are unbanked. This represents 1 in 12 households in the nation, or nearly 10 million in total.

• The proportion of unbanked households increased by an estimated 0.6 percentage point since the 2009 survey.

• 20.1 percent of US households are underbanked versus 18.2 percent in 2009. This represents one in five households, or 24 million households.

• 29.3 percent of households do not have a savings account, while about 10 percent do not have a checking account. About two-thirds of households have both checking and savings accounts.

Marketplace Trends - Un- and Under-banked

1Source: 2011 FDIC National Survey of Unbanked and Underbanked Households • September 2012


• Most US states utilize prepaid cards to disburse government benefits (UI- 43, CS-48, PIT-10 states), adopted primarily for cost savings through reducing check production and mailing

• Payment recipients without bank accounts benefit from faster, easier, more secure, and less expensive access to their funds (with cardholder fees trending down over time)

• Cardholders Fees: Identify educational and training/best practices tools industry has to lower or eliminate fees

• Two emerging trends in government prepaid programs:

1. Using the government prepaid program as a platform to launch financial literacy efforts:

• PayPerks in the U.S. Treasury’s Direct Express program

2. Emerging applications for the prepaid card:

• Residential ID/Prepaid Card

• Worker’s Compensation/Insurance Disbursement Card

The Next Stage in Government Prepaid

3

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Opportunities for Government Agencies

12

Disclaimer

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http://www.finra.org/index.htm

http://www.sipc.org/

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Paper disbursements are still prevalent

14

Key benefits for

government agencies

Prepaid Cards: A better alternative to paper checks

Save time

Reduce cost

Avoid disruption

Decrease risk

Improve compliance

12

34

5Control use6

15

Key benefits for

agency payees

Prepaid Cards: A better alternative to paper checks

Lower cost/risk

Quick access

Flexibility

Use everywhere

Protection

12

34

5No requirements6

16

The best programs deliver value to all stakeholders

Primary goal: Better servicing the recipients

Secondary goal: Savings for the agency, and for all tax payers

Understand the basic economics of prepaid

Recipients Agency Bank of America Merrill Lynch

Value

17

Keys to a successful program

Large program or small….

Understand the payment recipients

Over-communicate

Keep it simple

18

Conclusion

Save moneyStreamline payments

Direct DepositGovernment Prepaid Cards

For unbanked,

Government Prepaid Card … a

better alternative to paper checks

3

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Prepaid in Action

20

The Child Support Card

William Seaver, Commonwealth of Massachusetts

21

Goals and Expectations

• Offer branded debit card as payment option with funds deposited into a client owned and federally insured account.

• Pay 95 % of support to custodial parents electronically via direct deposit or the Child Support Card

• Issue checks only for initial payments or based on specific exemptions

22

• Minimize costs including fees and ATM surcharges to the customer and the IV-D agency

• Usable at Points-of-Sale for purchases and cash back (PIN or signature based)

• Nothing on the card to indicate that the funds are from child support payments

Goals and Expectations cont.

23

Benefits to the Customer

• No lost or stolen checks

• Payments continue uninterrupted when customer moves

• Convenient for both purchases and cash back

• No need to carry large amount of cash for purchases

• Money is available as soon as it is deposited

• Monthly account statement or access via the Web

24

Benefits to DOR

• Fewer returned and replaced checks

• Savings of $ 990,000 per year for postage and check stock alone

• Decrease undistributed collections

• No misuse of checks (fraud)

• Less exception processing with banks – “stop” payments and voiding un-cashed checks

25

9/30/2004 9/30/2005 9/30/2006 9/30/2007 9/30/2008 9/30/2009 9/30/2010 9/30/2011 9/30/20120

500,000

1,000,000

1,500,000

2,000,000

2,500,000

ChecksDirect DeposiDebit Card

Axis Title

Annual Number of Custodial Parent Disbursements by Check, Debit Card and Direct Deposit 2004 through 2012

Number of Disbursements

26

2004 2005 2006 2007 2008 2009 2010 2011 2012 -

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Returned Checks 2004 through 2012

Returned Checks

FFY

Return Checks

27

FFY 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

2000

4000

6000

8000

10000

12000

Number of un cashed stale checks from 2004 through 2012

Count

Un Cashed Checks

28

Lessons Learned

• Do the Program Research

• Communicate with your Customers

• Phase your Implementation

29

1. Do the Program Research

• Read the NACHA white paper on electronic payment methods

• Learn from states that have a debit card• Look at RFR’s issued by other states• Involve your computer staff early on• Hold a vendors’ conference – or two• Know what your vendors can offer • Know what will make them stay in or drop out

30

2. Communicate with your Customers

• Send out newsletters and notices

• Newsletter to all customers – announcements on website

• Notice sent 21 days prior to account set up

• Second notice sent at the time of account set up

• 21 day lead time prior to disbursements

• Customer Service phone and Web Access for Customers

31

3. Consider a Phased Implementation

• Initial phase restricted to cases closing from TANF in one Region only

• Second Phase all TANF closings State wide

• Third Phase 2000 Customers every two weeks

• Fourth Phase 2000 Customers every week

32

4. Plan for Address Updates

• Consider a monthly account statement

• Decide on address priority

• Address updates from the IV-D agency to the vendor

• Address updates from the vendor

33

Other Lessons

• Use the Regular ACH file to disburse to the vendor

• Try to plan for the un expected

• Think about how reversals will be handled

©2013 mastercard. proprietary and confidential ethan carr, mastercard alexander a. liu, bank of...

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