DOUBLE DUTY - Payments Cards as a Doorway to Greater Financial Health


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DOUBLE DUTY - Payments Cards as a Doorway to Greater Financial Health

  1. 1. DOUBLE DUTY:Payments Cards as a Doorwayto Greater Financial Health
  2. 2. 2Hudson Institute Center for Financial Services InnovationTable of ContentsExecutive Summary ...................................................................................................3Introduction................................................................................................................7 The Opportunity..................................................................................................7The Growth of Government Electronic Payments........................................................9 Federal Payments..................................................................................................9 State Payments...................................................................................................11Leveraging Government Payment Cards: Strategies...................................................13 Increased Choice...............................................................................................13 Expanded Functionality......................................................................................15 Improved Financial Capability...........................................................................19Challenges for Expansion of Government Payments..................................................21 Consumer Protection.........................................................................................21 Regulatory Issues...............................................................................................22 Consumer Acceptance.......................................................................................22Next Steps ................................................................................................................23 Federal Programs................................................................................................24 State Programs...................................................................................................25 Industry..............................................................................................................26 Nonprofits, Academics, and Consumer Advocates..............................................26Conclusion...............................................................................................................28Appendixes Appendix A. Prepaid Card Primer......................................................................29 Appendix B. State Programs and Prepaid Options..............................................30 Appendix C. Summary of Potential Strategies for Government Payment Cards....32 Appendix D. Model Fee Disclosure Box for Prepaid Cards.................................33 Appendix E. Compass Principles for Prepaid Cards............................................34Nonprofits, Academics, and Consumer Advocates....................................................26
  3. 3. 3Hudson Institute Center for Financial Services InnovationDOUBLE DUTY:Payments Cards as aDoorway to GreaterFinancial Health Executive SummaryElectronic payments are growing by leaps and bounds,overtaking paper as preferred payment mechanisms.Governments at all levels have embraced this change,often not just encouraging a move from paper checks buteven requiring it. Electronic payments have advantagesfor all parties. Governments lower the cost of distribut-ing benefits. The payments industry realizesfurther economies of scale and greater rev-enue from wider use of the payments net-work. For individuals, electronic paymentslower the incidence of lost checks and po-tentially improve efficiency and convenience.Electronic payments 1.0 is a successstory. Electronic payments spare govern-ment the cost of writing and distribut-ing checks while delivering funds torecipients more safely and reliably. Butelectronic payment methods can do more—and de-fining “more” will be the next chapter in the story.By far, most recurring government electronic payments,such as Social Security and unemployment benefits, aremade via direct deposit. However, direct deposit doesnot work for people without bank accounts. Paymentcards—prepaid debit cards with a 16-digit number,magnetic strip, and network logo—are an electronic op-tion that does not need a bank account. When state andfederal governments require recipients to receive theirbenefits electronically, those who do not choose directThe same systems that madeelectronic payment possiblecan also help peopleunderstand and plan theirfinancial lives.
  4. 4. 4Hudson Institute Center for Financial Services Innovationdeposit receive the default choice instead—a prepaiddebit card. And this is where the next chapter begins.Electronic government payments can serve as an entry intolower-cost, broader-function payment tools that supportrecipients’ financial lives.They can offer increased choiceamong financial services and a range of financial servicefunctions. Above all, they have the potential to help peo-ple improve their financial health and capability, whetherthrough access to more information or a transition togreater use of higher-quality, more effective services. Thesame systems that made electronic payment possible canalso help people understand and plan their financial lives.Government payers can model the best possiblepayment delivery vehicles. In selecting default pay-ment mechanisms, they can ensure that govern-ment payees use high-quality products, consideringfunctionality, low fees, and consumer protections.Electronic payments can supply all these things, butwill they? This report lays out ways to go beyond get-ting government payments into the hands of recipients,ultimately strengthening household financial security.Three broad strategies are key: increased choice, ex-panded functionality, and improved financial capability.Increased ChoiceThose who opt for direct deposit can choose among allthe accounts offered by banks and other financial institu-tions. Those who receive a prepaid card as the default op-tion have no choice —they get the card that results froma government contract with a designated card provider.This product has the features established in the contractbetween the government and the financial institution.There is an alternative to selecting a single winning bidderfor a government contract. Instead, the government couldspecify a set of features and allow multiple providers tobuild products to meet—or exceed—those specifications.Financial institutions could provide a range of appropriateprepaid products, or state and federal governments couldwork with financial institutions to design products andfeatures; and recipients could then choose among prod-ucts and providers. This choice process allows for somestandardization by requiring key features, but also allowsfor some customization and segmentation of features.Expanded FunctionalityGovernment payers could include functionality suchas reloadability, portability, fund transfers, or savingsbuckets to government-delivered payment vehiclesto turn them into fuller-featured financial accounts.Direct deposit puts government payments into a bank ac-count, where additional funds can be added from othersources. In the language of the prepaid card environment,these are “reloadable” accounts. In contrast, a governmentpayment recipient who opts for a prepaid debit card gen-erally does not gain access to a fully reloadable accountto which funds can be added from any source. For exam-ple, the Direct Express card issued on behalf of the feder-al government is reloadable only with funds from SocialSecurity and other recurring federal payment programs.It is possible to expand the functions of a prepaid cardby adding a subaccount for additional funds—called a“dual purse” in the industry—to bridge the gap betweenclose and full functionality. Reloadable dual-pursecards may be the shortest route to being banked formany unbanked government payment recipients. Onecard can serve as a way to access two accounts, onefor payments from the government program that issuedthe card, and the other for non-government payments.
  5. 5. 5Hudson Institute Center for Financial Services InnovationImproved Financial CapabilityWe have all experienced the declining cost of informationtechnology. Search engines have put a seemingly infinitenumber of facts at our fingertips.The cost of gathering anddistributing information that supports better financial de-cisions is also falling. For example, many bank accountsand prepaid cards offer low-balance alerts—when a trans-action reduces an account below some predeterminedlimit, a text message alerts the cardholder, enabling theperson to make an informed decision on future spending.We are just beginning to learn how technology can in-crease financial capability and help people improve theirfinancial health.1It can be used to create decision aidsand support systems that enable consumers not only toaccomplish financial transactions but also to achievefinancial goals. These can be simple goals like havingenough money to last through the month, or longer-term goals like saving for an education or retirement.ConclusionBecause of tremendous variation in how the 50 states,the federal government, and other countries are tacklingthese issues, we have an opportunity to proceed carefullyand deliberately, learning from multiple experiences.This paper describes where electronic government pay-ments stand today and into the future. It identifies howgovernments, participants in financial systems, and alliesof payment recipients can help fulfill the promise of elec-tronic payments. It also identifies further areas for studyand makes a few initial suggestions for what electronicpayments 2.0 for government programs could include.1 CFSI defines financial capability as a set of consumer behaviors that lead to tangible improvements in financial health. It is measured through whetheror not individuals can cover monthly expenses with income, track their spending, plan ahead and save for the future, effectively select and managefinancial products and services, and gain and exercise financial knowledge. According to CFSI research, effective financial capability interventions mustbe relevant, timely, actionable and ongoing in order to have impact.March 1, 2013 dealine forelectronic payment offederal benefitsTimeline for FederalElectronic Payments1974Direct deposit available forSocial Security benefits1996Electronic delivery of FoodStamps (now SupplementaryNutrition Assistance Program,SNAP) and Assistance for Familieswith Dependent Children (AFDC,now Temporary Assistance forNeedy Families, TANF)1996EFT’99 established2005Go Direct campaign is launched2008Direct Express card available forrecurring federal benefit1999Electronic Transfer Accounts(ETAs) available2010Treasury rules for electronicpayment published
  6. 6. 7Hudson Institute Center for Financial Services InnovationGovernment paymentcards can be viewed aspotential bank accountswaiting to be opened.The OpportunityThanks to digital technology, many tasks that once re-quired paper now use electronic formats. Checks arenearly a thing of the past, debit cards have surpassedboth checks and credit cards as the most common pay-ment method, and the use of prepaid cards is growing atdouble-digit rates.2Electronic payments make up three-fourths of all non-cash payments by number and morethan half by value.3The greater efficiency and conveni-ence of electronic formats have driven this transformation.For most consumers, electronic payments meandirect deposit of pay or benefits into a checkingor savings account in a bank. For those who lackbank accounts, payment cards have become analternative entry point into the digital world.Payment cards have solved the problem of howto make electronic payments to people withoutbank accounts, enabling government agencies toreducecosts.Butcostreductionisonlyoneaspectof electronic payments; other aspects—safety, conveni-ence, and the opportunity for consumers to improve theirfinancial health and capability—are equally important.And the opportunity is sizable. For example, in January2013, more than 62 million consumers received SocialSecurity or Supplemental Security Income (SSI) benefitstotaling more than $70 billion.4Of these, 95 percent ofthe Social Security and 86 percent of the SSI paymentswere made electronically to bank accounts or via DirectExpress, a prepaid card for federal benefit recipients.Supplemental Nutrition Assistance Program (SNAP) ben-efits, formerly known as food stamps, deliver more than$74.6 billion annually to nearly 22.3 million householdsvia monthly loads to payment cards.5Overall, more than aquarter of all Americans live in a household that receives aregular, usually monthly, government payment or benefit.INTRODUCTION2 See “Consumers’Use of Prepaid Cards: A Transaction-Based Analysis,” a publication of the Federal Reserve Bank of Philadelphia and CFSI (August2012), at See the “2010 Federal Reserve Payments Study” at See Social Security’s Monthly Statistical Snapshot at USDA Supplemental Nutrition Assistance Program FY 2012 statistics at
  7. 7. 8Hudson Institute Center for Financial Services InnovationMany state and federal benefit recipients lack bank ac-counts. According to the 2011 FDIC National Survey ofUnbanked and Underbanked Households, 8.2 percentof households (about 17 million adults) are unbanked,and an additional 20.1 percent (about 51 million adults)are underbanked—that is, they may have a bank accountbut also rely on alternative financial systems, such ascheck cashers, money orders, and payday loans.6Thesame survey reveals that among those who report hav-ing a prepaid card, 87 percent are unbanked. Thus,these prepaid cards may be the only part of their finan-cial lives that involves the electronic payment system.To be part of the financial mainstream, individuals needthe capacity that usually comes with a bank account—asafe place to deposit and store money and ways to makepayments and save. Payment cards can provide thesecapacities. Payment cards and related technologies forgovernment payments could give unbanked recipientsbroader access to financial services. And extending thereach of government payment card programs could al-low consumers to obtain additional services at a rela-tively low cost (see Appendix A, Prepaid Card Primer).Indeed, government payment cards can be viewed as po-tential bank accounts waiting to be opened. Governmentpayments can serve as an entry into lower-cost, broader-function payment tools that enhance recipients’ finan-cial lives. These payments can increase choices amongfinancial services and provide a range of financial ser-vice functions. Their greatest promise lies in their po-tential to help people achieve a higher level of financialhealth, whether through access to more information ora transition to increased use of higher-quality, more ef-fective financial services. The same systems that madeelectronic payment possible can also provide tools thathelp people understand and plan their financial lives.6 “2011 FDIC National Survey of Unbanked Households,”
  8. 8. 9Hudson Institute Center for Financial Services InnovationFederal PaymentsThe federal government first used electronic payments todepositbenefitsdirectlyintobankaccounts.SocialSecuritybeneficiarieshavehadthedirectdepositoptionsince1974;by the early 1990s, more than half opted for direct deposit.In the early 1990s, pilot programs were established forelectronic delivery of food stamp benefits and certaincash programs such as Aid to Families with DependentChildren (AFDC, now TANF, TemporaryAssistance for Needy Families). Recipients usedelectronic benefit transfer cards (EBT) to obtainfood stamp benefits at point-of-sale (POS) termi-nals in grocery stores and cash benefits at ATMsand POS terminals. The Personal Responsibilityand Work Opportunity Reconciliation Act of1996 established electronic delivery for foodstamps (now SNAP) and for TANF payments.Congress took electronic delivery of fed-eral payments beyond the realm of welfarevia the Debt Collection Improvement Actof 1996. A portion of the bill that becameknown as ‘‘EFT ’99’’ declared that by January2, 1999, the Department of the Treasury would haveto use direct deposit for all recurring federal benefits,such as payments for Social Security, SSI, veteransbenefits, and railroad retirement (nonrecurring pay-ments can also be delivered electronically). The lawwas intended to save tax dollars by eliminating checks.As of March 2013, thefederal government’sofficial policy is that paperchecks are no longeravailable for programsthat provide recurringpayments.THE GROWTH OFGOVERNMENTELECTRONICPAYMENTS
  9. 9. 10Hudson Institute Center for Financial Services InnovationTreasury’s final rules for implementing EFT ’99 stoppedshort of mandating direct deposit. Instead, consumerscould choose to receive their benefits through directdeposit; a check; or a special account, the ElectronicTransfer Account (ETA). Consumers have not warmed upto the ETA; only about 167,000 ETAs were active in 2012.Starting in the early 2000s, the federal governmentpromoted direct deposit as simple, safe, and securethrough its Go Direct campaign. The campaign alsodeclared that direct deposit gives consumers con-venience and control—they can use any account typeoffered by the financial institution of their choice.But not every payment recipient has a bank account,and those who do not have bank accounts cannottake advantage of direct deposit, no matter how muchthe government encourages it. The development ofprepaid debit cards by the financial services indus-try created a way for people without bank accountsto migrate from paper checks to electronic payment.Since June 2008, recipients of recurring federal paymentssuchasSocialSecurityhavehadtheoptionofreceivingtheirpayment via the Direct Express card. Treasury contractedwith Comerica Bank to provide the card nationwide. Thecard carries minimal fees (see Box 1, Direct Express Fees).In 2010, Treasury issued rules requiring that recipients ofrecurring payments from the federal government receivetheir payments electronically. New benefits recipientsare signed up for either direct deposit or a Direct Expressbox 1. Direct Express Fees Standard Free Services The ONLY Fees You Can Be ChargedService Feen Purchases at U.S. merchant locations Freen Cash-back with purchase Freen Automatic deposit notification** Freen Automatic low balance notification** Freen Web account access Freen ATM balance inquiry Freen ATM denial Freen Customer service calls Freen Cash from bank tellers Freen Card replacement - one free per year Freen ATM cash withdrawal in the U.S. One free withdrawal including the District of Columbia, with each deposit to Guam, Puerto Rico, and U.S. Virgin your Direct Express Islands. ?Surcharge by ATM owner Card Account* may applyOptional Service Feen ATM cash withdrawals after $0.90 eachfree transaction are use in U.S. withdrawal (afterincluding District of Columbia, free transactionsGuam, Puerto Rico, and U.S. are used)Virgin Islands. Surcharge byATM owner may apply n Monthly paper statement $0.75 ea. mo.mailed to you n Funds transfer to a personal $1.50 ea. timeU.S. bank account n Card replacement after on free year $4.00 after one (1) free ea. yr.n Expedited delivery of replacement $13.50 ea. timecard n ATM cash withdrawal outside $3.00 plus 3%of U.S. Surcharge by ATM owner of amount may apply withdrawnn Purchase at merchant location 3% of purchase outside of U.S. amount* For each federal government deposit to your Card Account, ComericaBank will waive the fee for one ATM cash withdrawal in the U.S. Thefee waiver earned for that deposit expires on the last day of the followingmonth in which the deposit was credited to the Card Account.** The customer can request this service upon receiving the debit card.
  10. 10. 11Hudson Institute Center for Financial Services Innovationcard; existing benefit-check recipients were encouragedto sign up for the Direct Express card. As of January2013, there were 2.7 million Direct Express cards inuse, accounting for 3.6 percent of payments. About90.8 percent of federal payments are made via directdeposit to a bank account and 5.6 percent are madevia check. The full implementation date for electronicpayments was set as March 1, 2013, although recipi-ents who had not signed up for direct deposit or DirectExpress by that date continue to receive their checks.Electronic payment helps bolster the Social Securityprogram. Each Social Security recipient who signs up fordirect deposit allows the program to avoid $205 in costsover the period they receive benefits.7Social Security trustfunds are estimated to be $12 billion higher because ofthe cumulative impact of moving to electronic payment.State PaymentsSNAP and TANF are federal benefits distributed at thestate level, sometimes combined with additional state-level assistance. States issue magnetic stripe cards toprogram recipients, who then swipe their cards at POSterminals to make a purchase. The terminal copies iden-tity information from the card and transmits it to the con-tractor that administers the program. Electronic systemsverify information, debit the amount from the recipient’sallocation, and relay the approval back to the merchant.States began EBT delivery in the 1980s, and by 2004 everystate had adopted EBT cards.The result is a large cohort ofpeople, many at the margins of the financial system, whohave mastered the technology of using a magnetic stripecardataPOSterminal.Manyhavealsolearnedhowtodealwith a POS terminal that requires a decision about whichbenefit should be accessed for the current transaction. The EBT model has had spillover effects on other pro-grams. In other state-administered programs that providemoney to recipients—for example, child support andunemployment insurance—states have moved morerapidly than the federal government to a policy of nolonger offering paper checks. Generally, recipientscan opt for direct deposit to a bank account; however,some have no choice but to receive payment via a card(see Appendix B for state-by-state detail on paymentoptions under unemployment, TANF, and child sup-port). Some state programs use EBT cards as the onlydelivery model, as opposed to the opt-in approach thatTreasury and the Social Security Administration used tomove participants from paper to electronic payments.States follow one of two models in combining SNAPwith cash assistance programs. In one model, a sin-gle card serves as an electronic benefit card that canaccess both SNAP and the cash assistance program(most often TANF). The funds remain the government’suntil a transaction uses the funds. In the other model,the cash benefit gets transferred to the individual’s ac-count at the beginning of the benefit period. The cardis a reloadable debit card (although reloadable onlywith the next period’s payment from the governmentprogram). Thirty-five states combine SNAP with TANF,providing recipients with one card to access bothcash benefits and SNAP funds to buy eligible foods.The largest benefit for government is cost savings. Besidesthe efficiency of reducing paper use, the governmentsaves on postage, bank fees, and staff who deal withmis- or undelivered payments. The payments industrycan better realize economies of scale from the complexand expensive computer systems that make electronicpayments possible. Prepaid cards also provide an op-portunity for banks to realize interchange fees—feescharged to merchants for acceptance of credit card trans-actions—on purchases made using cards that functionas debit cards. The interchange fees banks receive are,according to a recent study by the Federal Reserve Bankof Philadelphia and the Center for Financial ServicesInnovation, an important source of revenue and makepossible such features as no monthly fees for consumers.87 Hanns Kuttner, “The Move to Digital Payment: When the Check Is No Longer in the Mail,” Hudson Institute (2011), See “Consumers’Use of Prepaid Cards.”
  11. 11. 12Hudson Institute Center for Financial Services Innovationbox 2. The My AccountCard PilotDuring the 2011 tax-filing season, the Treasury Department carried out a demonstration projectthat targeted low- and moderate-income taxpayers with a prepaid card that could be used for di-rect deposit of income tax refunds. The demonstration made a direct mail offer and tested re-sponses to three features: a monthly card fee of $4.95 versus no fee; with and without a linked sav-ings account; and messaging that focused on either the convenience or the safety of the card.Among those who were most likely to be unbanked, the response rate was 0.8 percent—more than twice as highas the overall response, but still lower than expected.Among those who were issued cards, however, 33 percentused it within six months. Of those who used the card, 48 percent used it to receive their income tax refund.Thereweremitigatingfactorsforthelowresponserate,suggestingthetrialwasnotanadequatebasisfordetermin-ing the card’s utility. Many low- and moderate-income households pay the fee of a tax preparer using a refund an-ticipationcheckorloan.Optingfortheprepaidcardmeantforgoingthatoption,effectivelylimitingtheproducttothosewhohadthereadycashtopayataxpreparer’sfee.Also,themailinglisthada12.5percentreturnrate,nearly50 percent higher than the level expected in direct mail. Low- and moderate-income taxpayers file returns ear-lier in the filing season.A hiccup in the mailing process showed that offers mailed later yielded lower responses.The demonstration produced a number of lessons, including:• Monthly fees matter. The difference in response rate to an offer of an account with a fee and onewithout implied that each 10 percent higher monthly cost reduced applications by 2.6 percent.• A monthly fee reduced card longevity. Those offered a card with a monthly fee were 55 percent lesslikely to be active users six months later.• Neither the savings offer nor messaging about safety or convenience led to a higher response rate.• Most users paid some fees. Fees could be incurred by using a non-network ATM or adding money at aparticipating retail location. Fees decreased as time holding the card went on.• Added steps reduce use. While the card was intended as a device to receive income tax refunds, receiv-ing the refund on the card required having the card in hand when preparing a tax return or meetingwith a preparer. Of cards issued, only one in five resulted in a direct deposit of an income tax refund tothe card.Source: Caroline Ratcliffe and Signe-Mary McKernan, “Tax Time Account Direct Mail Pilot Evaluation,” Washington: Urban Institute, 2012. federal government has also piloted work on elec-tronic delivery of nonrecurring payments, such as in-come tax refunds. While many refund recipients optfor direct deposit to bank accounts, unbanked house-holds do not have that option. For the past severalyears, tax preparers have offered prepaid cards for taxrefunds. In 2011, the Treasury Department initiated theMyAccount program to deliver tax refunds via reload-able prepaid card accounts. The pilot provided someimportant lessons learned, and a redesign of the programis in process (see Box 2, The MyAccountCard Pilot).
  12. 12. 13Hudson Institute Center for Financial Services InnovationUnlike EBT, prepaid debit did not develop to solve agovernment payment problem, but once it emerged, itdid solve the problem of providing payments electroni-cally to people without bank accounts. As the technologyevolves, opportunities are emerging for recipients to lev-erage government payments to obtain other financial ser-vices. With electronic payments now the norm for stateand federal programs, it’s time to look atwhat the next generation of these paymentscan provide—government payments 2.0.Here, we propose three interlocking strate-gies to consider: increased choice, expand-ed functionality, and improved financialcapability.Increased ChoiceThe field of behavioral economics haspopularized the concept of a consumer-friendly defaultoption. The classic example is automatic enrollment in aretirement savings plan. For Social Security and SSI, thedefault option is the Direct Express card. But default op-tions are not the only solution. The government could setup a forced-choice framework that requires consumers tochoose among payment options. The policy question tobe addressed is which structure is better for consumers.Consumers who sign up for direct deposit of federal andstate benefits have a lot of choices. They can choosethe bank or credit union they use. And they can chooseAll approaches outlinedhere would provideunbanked individualswith capabilities thatcome with a bankaccount.LEVERAGINGGOVERNMENTPAYMENT CARDS:STRATEGIES
  13. 13. 14Hudson Institute Center for Financial Services Innovationfrom all of the possible accounts that institution offers,with a range of features and fees. However, consum-ers who receive their government benefits on a prepaidcard—many of whom are unbanked—have no choice.They receive the card with the features and fees the gov-ernment provides through a card issuer, usually a bank.As an alternative, instead of contracting with a singlefinancial institution, the government could specify a setof basic features and fees for a prepaid card program.Financial institutions could choose to offer this basicproduct but could also provide additional features andservices to address a wider variety of consumer financialservice needs. Thus, for example, an account might allowmore ATM withdrawals per month than the basic account.Other products could have a linked savings account thatwould allow for splitting monthly payments between oneaccount for current expenditures and another for savingfor irregular, costly purchases or longer-term needs. Theadditional features—and any accompanying fees—wouldbe driven by consumer needs, and consumers couldchoose among the range of card providers and programs.Offering multiple products requires a deeper and morenuanced understanding of consumers, their motivations,and their financial lives. Current products are oftenstructured to yield no costs for certain consumers. For ex-ample, the Direct Express card has no fees for someonewhose cash needs can be met by a single monthly ATMwithdrawal and cash back on purchases with the card.This works well for some people, but others may prefer aset monthly fee in exchange for a larger number of ATMtransactions. The set fee would mean they don’t need tothink about fees with every additional ATM transaction.Interestingly, Treasury initially tried a version of this “freeto choose” approach when setting up the electronictransfer account (ETA) as part of the EFT ’99 initiative.The time may be ripe to revisit this approach as partof a next generation initiative. Prepaid cards were stillrelatively new in 1999; today they are ubiquitous. TheETA had clear product specifications that could notbe varied—a one size-fits-all approach; a next-gener-ation card could offer “add-ons” to a basic accountstructure to allow consumers to customize their ac-count. Because the ETA did not have a network brand(MasterCard or Visa), functionality was limited. A next-generation product could be usable in the card networks.Treasury developed a website for consumers to searchfor an ETA by entering their zip code and matchingthat to banks offering ETAs.9But in 1999, many con-sumers who might be targets for ETAs—including manyunbanked consumers—lacked access to computers.Today’s consumers are more likely to have access ei-ther via computers or, more likely, mobile devices,and should be better able to search out and connectwith an appropriate prepaid card provider. Moreover,the next-generation website could match consumersnot only with local providers but also with productsthat have the features that best meet their needs (seeBox 3, Steering Versus Rowing: How it Could Work).9 See
  14. 14. 15Hudson Institute Center for Financial Services InnovationExpanded FunctionalityReloadabilityA reloadable card allows a consumer to add funds.Cards such as Direct Express and the prepaid cards usedby states in one sense are reloadable, since they canreceive funds many times on the same card. But onlythe government agency may load funds onto the card.In contrast, general purpose reloadable (GPR) cards, likebank accounts, allow funds to be loaded from multiplesources (government, employers, individuals) and in mul-tipleforms(cash,check,directdeposit,etc.).Byexpandingreloadability to non-governmental sources, governmentpayment cards can offer recipients a more powerful finan-cial management tool. Cards could be portable, so thatthey remain useful even if government payments end (e.g.,unemployed workers could use the same card for payrolldeposits once they start working again). That would beconvenient for consumers, but there would be trade-offs.One issue is that the government agency acting as acard program manager and its issuing bank wouldtake on additional risks in opening their cards to out-side deposits. For example, today’s issuing banks knowthe source of funds: the government program. Theywould not have that same level of knowledge aboutthe sources of other funds that come from programparticipants. Banks would need to mitigate against thepotential fraud risks, including standard anti–money-laundering protocols, relating to other sources of funds.As more banks issue GPR prepaid cards outside of thegovernment benefits systems, they are gaining experi-ence in developing the extensive computer systemsthat support these cards. Reloading networks, remotedeposit capture, and mobile financial services all helpto enhance banks’ ability to serve these accounts,box 3. Steering Versus Rowing:How it could WorkWhen governments steer, they provide strategic direc-tion to a program. Delivering payments electronicallyis an example of steering. When governments row,they more narrowly get into delivering the productsfor those programs. Contracting with a single financialinstitution to provide a specified product or serviceis an example of rowing. Arguably, the comparativeadvantage of governments is to steer rather than row.Federal and state governments could set standardsthey expect government payment products to meetand then turn to a public-private partnership to do allthe rowing: determine what products will be offered,educate recipients about choices, and sign them upfor the products recipients choose. One scenario could build on web-based selectionsystem, similar to the Medicare Part D plan-findersite.After providing information required to determineeligibility, consumers would be able to choose pay-ment delivery either via direct deposit to their bankaccounts or via a prepaid card. Those who opted for the prepaid card would thensee a screen providing information about the prepaidcard program. Users would have the opportunityto see more screens about how prepaid cards workor could move directly to screens that explain whatproducts were available. The range of choices couldtake into account where the consumer lives as well asthe range features consumers need and want, as wellas information about “add-ons” and fees, enablingconsumers to make their own feature/fee trade-offs.This could lead to a set of customized choices for theconsumer: “Based on the information you provided,the product that best fits your needs is ...”This public-private “steering and rowing” partnershipmight allow a faster product innovation cycle thanwould be available under a more-traditional govern-ment payment contract which typically lasts five yearsor more.
  15. 15. 16Hudson Institute Center for Financial Services Innovationopening the possibility that banks could provide en-hanced services to government payment recipients.Some expanded functionality, however, may be lim-ited as a result of the Durbin Amendment, a provisionin the Dodd-Frank legislation that places some limitson interchange fees that banks can charge merchants.The expanded functionality that comes with reload-ability could be achieved via different combina-tions of number of cards and number of subac-counts on the card (see Appendix C, Summary ofPotential Strategies for Government Payment Cards).One Card, One AccountThis strategy builds on the high degree of govern-ment involvement in setting the terms for the DirectExpress cards and the cards issued for state programs.Government programs could revise their policies andallow the banks that issue the cards to permit cardhold-ers to deposit funds from other sources to their govern-ment-issued card in the same account. For example,Social Security recipients who continue to work couldhave their pay deposited to their Direct Express cards.Workers who receive unemployment compensationcould use the same card after getting a job, now for di-rect deposit of their pay. Child support recipients couldhave income tax refunds deposited directly to their cards.Commingling funds from multiple sources can makeit more difficult to deal with policy restrictions regard-ing garnishment and wage assignment (for example,Social Security payments are not subject to assign-ment). Some states have concerns about recouping er-roneous payments when payments go to accounts thatcommingle government payments and private funds.And financial institutions would have to explore a fea-sible business model and fair fee structure for these ac-counts. But from the consumer perspective, the unifiedstrategy is the simplest—it is more straightforward andeasier to use, since it most closely resembles a stand-ard checking account or GPR prepaid card account.Reloadability might make for more complex procure-ment decisions. An offeror might structure fees for non-government reloads to allow it to more aggressivelyprice the government contract. Ideally, governmentsshould want to offer a competitively priced product todemonstrate they are providing benefits to consumersand not steering consumers into “predatory” products.One way to reduce risks associated with reloadabilitywould be to make it a feature that had to be unlocked.Instead of automatically issuing reloadable governmentpayment cards to all cardholders, a bank could requirethat a cardholder contact the financial institution beforefunds could be deposited. This would enable the bankto go through its usual customer identification protocolsand would reduce any risk the bank might perceivefrom having many “latent customers,” cardholders whocould at any moment show up, either in person or viaan electronic transfer, and become a customer withoutbeing subject to those protocols. It would also allowthe financial institution to separately price the prod-ucts—for example, charging a different fee for custom-ers who wanted the reloadability option while con-tinuing to price the government-only account without amonthly fee, as Direct Express and many state cards do.Another way to reduce risks would be to limit reload-ability to specific sources of funds—for example, incometax refunds or payroll funds (the mandate for federalelectronic payments does not extend to income tax re-funds). The once-a-year payment for an income tax re-fund, surely a secure source, is a natural extension ofgovernment payments onto a government benefit card.Opening government prepaid cards to payroll depos-its would accommodate a primary income source formany users. Allowing deposits from a payroll sourcewould also be less risky, and thus less costly, thanopening the card to deposits from any source, mak-ing it a more reasonable compromise between costand functionality for both government and industry.
  16. 16. 17Hudson Institute Center for Financial Services InnovationDepositing cash or checks sent to consumers might bemore challenging. Online banks have demonstratedthat mail and remote deposit via image capture canmitigate the lack of local branch locations. Consumersmight be less interested in a small or remote branchnetwork. An advantage may go to providers who set uprelationships with retailers (check cashers, grocery stores,prepaid cellphone sellers) to expand their retail reach.One Card, Multiple AccountsIn a multiple account structure, at least two ac-counts would be accessible from one card—one forthe government cash payment and the other for non-governmental funds. Cards like these are sometimescalled “dual purse” cards. This arrangement wouldbe similar to providing SNAP and TANF benefits ona single card, as many states currently do. Recipientsswipe a card at a POS terminal and then select the ac-count to be used for the purchase. The segregation offunds would avoid any issues that might arise with anaccount that commingled government and other funds.Multiple accounts might reduce risk and regulatory bur-den for the issuing bank, meet the original purpose ofthe payment card (getting dollars from the governmentto consumers), and improve usability for the consumer.Banks would need to consider pricing structures for amulti-account card. One option would be to price ser-vices for the non-government account appropriately,without cross-subsidies across the two sets of accounts.It is likely that pricing would still be more favorable forthese cards than GPR cards consumers obtain elsewhere,because customer acquisition costs would be lower.Consumers would need to pay attention to the source offunds to be used at each purchase. For example, parentswho have a child support account and a payroll accountaccessed from the same card would need to pay atten-tion to which “purse” they used for which purchase.At the same time, separate accounts might increase acard’s usefulness. Some economists have argued thatconsumers sometimes behave as though the amountsheld in separate accounts are not fungible. This notionof “separate mental accounts” suggests that consum-ers might feel better off financially with this structure.A cardholder might view the funds in the governmentpayment account as money for necessities, while thosein the other account are available for extras. Multipleaccounts would allow consumers to tag purchases andtrack spending by category, such as food or clothing. Forexample, child support recipients report that paymentcards help them track costs relating to their children.Multiple-account cards might also allow joint venturingbetween financial institutions. A large financial institu-tion might find the scale of government payments wellmatched to its scale of business but not have a sub-stantial retail presence in some markets. In this case,the large, payments-oriented bank could join withsmaller, regional banks or credit unions to offer “onecard, two accounts” to take advantage of the smallerbank’s footprint in some areas. This approach couldalso allow smaller financial institutions that lack thescale required for the government payments businessto reach the market of government-payment recipients.Multiple-account cards might also enable some efficien-cy in providing a broader range of benefits and payments.As indicated, SNAP andTANF benefits are often deliveredon the same card. Many recipients also receive state andfederal income tax refunds, and may receive child supportand unemployment benefits as well. For example, Utahrecently started providing multiple benefits on a singlecard (see Box 4, Utah: One Card, Multiple Programs).With a multi-account card, separate purses can keepall these funds segregated without requiring the con-sumer to carry five or six cards. But some governmentofficials are concerned that product complexity andmultiple accounts could lead to consumer confusionand dissatisfaction. Participants would have to be at-tentive to how much money of which type they hador accept the possibility of re-executing a deniedtransaction to obtain funds from another account.
  17. 17. 18Hudson Institute Center for Financial Services InnovationJoint Marketing -- Two Cards, Two AccountsA joint marketing approach joins enrollment in a gov-ernment program with an opportunity to sign up for aGPR card from the same issuing bank that providesthe government card. With two cards, two accounts,there would be no need to integrate government pay-ments with other sources of funds on a single card. Iffinancial institutions had lower customer acquisi-tion costs, a substantial cost in many GPR programs,they might be able to lower the cost of the card toconsumers. The GPR card could be offered at enrollmentor in the mailer that delivers the government card itself.An advantage of the joint approach is its relative flex-ibility. Government payment product contracts tend tobe for terms of five years or more, limiting innovationduring the contract. A companion GPR card, however,can continuously innovate and improve, trying out newfeatures and services. And once consumers becomefamiliar with using their government prepaid cards,they may be more willing to try out a GPR card withbox 4. Utah: One Card, Multiple ProgramsA single card can serve multiple government programs. Utah is about to launch a card that will be used in moreprograms than any other government card. It will be used for:Cash assistance: Multiple government programs that provide cash payments, such as unemployment insuranceand Temporary Assistance to Needy Families (TANF), will be routed to a single account. The card will be the solealternative to receiving payments via direct deposit. The card will also be used to make payroll payments to stategovernment workers who do not opt for direct deposit.SNAP benefits: The card will also be the means for Utah residents enrolled in SNAP to access benefits. When theypresent the card to make a purchase, a display will appear on the point-of-sale terminal asking whether the fundsfrom the purchase should come from the cash account or the SNAP benefit.In-kind services: Child-care and training programs will also require participants to use the card. These programswill be, as with SNAP, part of a closed loop. The card will be usable at a defined universe of providers who havea relationship with the state agency. The card will support a “time and attendance”-like function, generating infor-mation about who was present at which program at what time. This reduces the cost of acquiring and submittinginformation required to make accurate payment to providers.The card will not include all state programs. Most notably, child-support recipients who do not opt for direct depositwill continue to receive payments via a separate prepaid card. However, as systems evolve, other programs mayjoin. The WIC program administered by the state health department, for example, faces a mandate to move frompaper coupons to an electronic payment system. Utah supplements benefits paid under the Supplemental SecurityIncome (SSI) program for some people, and the card may become the means for disbursing the state supplement.Utah had previously adopted a common account number across the programs that participate in the card. Thisgreatly simplified the process of linking individuals to a single card.A single card has allowed Utah to realize scale and scope economies that reduce the cost of the payment system.For example, SNAP-only cases will cost 57 cents less per case per month. Utah expects to save $1 million per yearin the state’s administrative costs. If every state had a card that was as broad as Utah’s, savings to state governmentscould exceed $160 million per year.
  18. 18. 19Hudson Institute Center for Financial Services Innovationadded functionality. A joint-marketing project couldmove forward by offering a GPR card to a subset ofpayment recipients to assess response rates and us-age to help issuing banks determine pricing structures.Private Cards – One Card, One AccountConsumers already can choose to have federal ben-efit payments loaded onto a private-label GPR card.The federal requirements are few: an account mustcome with FDIC insurance, it cannot be tied to au-tomatic loan repayment, and it must have the pro-tections, such as limited consumer liability in casethe card is lost or stolen, afforded by Regulation E.But just like shopping for a bank account, con-sumers need to shop for and compare GPR cards.One way to simplify the choice and reduce participants’fear of choosing the wrong card is through trusted al-lies—affinity groups that exist to serve specific popula-tions. Examples include civic groups, veterans groups,and alumni organizations. A specific example is theAARP Foundation’s reloadable, prepaid MasterCard,issued through GreenDot Bank. Consumers who al-ready have the AARP prepaid card can sign up to havedirect deposit of paychecks and government benefits,including Social Security, unemployment, and welfare.Increased FinancialCapabilityFinancial capability involves a set of consumer behaviorsthat lead to tangible improvements in financial health.Componentsincludetheabilitytocovermonthlyexpenseswith income, track spending, plan and save for the future,effectively select and manage financial products and ser-vices, and gain and exercise financial knowledge. CFSIhas found that effective financial capability interventionsshould be relevant, timely, actionable, and ongoing tohave impact.10Government prepaid cards meet all thesecriteria, providing an opportunity to establish best practic-es for promoting financial capability among consumers.Government payments have the potential to help con-sumers build financial capability through a numberof channels. Each monthly load provides an oppor-tunity to send financial management messages andreminders. For example, with each text message tell-ing Social Security recipients their funds have beenloaded to their cards, there could be an additionalreminder, such as “Have you checked your credit re-port this year? Visit”But the underlying technology of prepaid cardscan do more—from the simple, like checking bal-ances, to the more complex, like tagging purchasesand creating summaries of spending. Most prepaidcards can be monitored via online or mobile de-vices, delivering real-time financial information thatenables consumers to make better-informed decisions.Many cards today allow consumers to track spending incategories (food, clothing, entertainment, pets), to helpthem to make informed decisions and adjust spending.Some card issuers provide visual displays—charts, graphs,progress-trackers—on websites or within their mobileapps, showing consumers how much remains in their ac-counts or how much they’ve spent this month on coffee.10 See “From Financial Education to Financial Capability: Opportunities for Innovation,” at
  19. 19. 20Hudson Institute Center for Financial Services InnovationPrepaid cards can also provide planning services, al-lowing consumers to set spending limits and receivetext notices or emails when nearing those limits. Forexample, consumers who need help managing monthlypayments across the entire month could get weeklyspending-limit notices to help them manage theirmoney throughout the month. These notices also workfor saving, either automatically sweeping money intosavings or reminding consumers to move money intoa savings account. A logical next step is to help con-sumers connect with financial coaching and advice.Some cards have partnered with organizations that usegames and activities to reward consumers for onlinelearning and improvements in spending and savingbehaviors. So, for example, consumers are encour-aged to set goals—a vacation, money for birthdaypresents, a back-to-school shopping fund—and workout a plan to achieve the goal and even win prizes.1111 An example of this is the PayPerks program, in development; see
  20. 20. 21Hudson Institute Center for Financial Services InnovationConsumer ProtectionExpanding financial access is not the only consid-eration for government payment cards. To help low-income consumers improve their financial lives, thecards must provide strong consumer protections.Consumers also need to be confident that the moneystored on prepaid cards is secure, and they needto understand the exact costs of using these cards.Monthly fees, for example, reduce benefitsto consumers. Currently, many, but not all,payment cards used in government programshave no monthly fee. At least one state has acontract with the issuing financial institutionthat requires the consumer to pay a monthlyfee.12Some cards leave consumers exposed tofees that can accumulate with particular pat-terns of behavior (e.g., making frequent, smallATM withdrawals from non-network ATMs,rather than getting cash back when making apurchase). Because understanding fees can bevery important for consumers, disclosures arecritical to help consumers readily find and understand theinformation they need to use their cards wisely. CFSI hasdeveloped a model fee disclosure box to recommend howto make the necessary information readable and easy tofind(seeAppendixD,BetterDisclosuresforPrepaidCards).Understanding whatfeatures potentialusers value is anew challenge forgovernments as well astheir industry partners.12 See National Consumer Law Center’s 2013 Survey of Unemployment Prepaid Cards; FOREXPANSION OFGOVERNMENTPAYMENT CARDS
  21. 21. 22Hudson Institute Center for Financial Services InnovationCard issuers and program administrators are willingto make cards available at no fee to the consumer orthe government because they expect to earn inter-change fees from merchants who accept the card forpayment. Changes that affect projected interchangerevenues could lead to additional fees for consumers.Other important consumer protections are provided underRegulation E of the Electronic Fund Transfers Act. Amongother things, Regulation E gives consumers some liabilityprotection if a card is lost or stolen, or if fraudulent trans-actions show up on an account. Regulation E also outlinesdispute procedures so that funds may be restored to theconsumer’s prepaid card while an investigation proceeds.CFSI’s Compass Guide to Prepaid outlines core, stretch,and next-generation practices across all aspects of aprepaid account (see Appendix E, Compass Principlesfor Prepaid Cards). Ideally, government prepaidcards would follow all of the core and stretch prac-tices and be a model for well-designed card programs.Regulatory IssuesMaking government prepaid cards reloadable may re-quire other changes that would impact costs for financialinstitutions and consumers. Allowing non-governmentfunds to be loaded onto the cards would require fi-nancial institutions to collect more personal informa-tion about cardholders because of increased regulatoryrequirements intended to limit money laundering andterrorism financing—the customer identification pro-gram and “know your customer” requirements. Whilethe government agency carries out similar identifica-tion protocols for determining eligibility, there is noguidance for financial institutions as to whether theycould rely on the government agency’s due diligence.Other rules may play a role in how accounts would bestructured and priced. One is Regulation E governing13 The details of the rules implementing the Durbin Amendment can be found at “2011 Interchange Fee Revenue, Covered Issuer Costs, and Covered Issuer and Merchant Fraud Losses Related to Debit Card Transactions,” fund transfers, including limitations on con-sumer liability. As of this writing, the Consumer FinancialProtection Bureau is considering whether and howGPR cards should be covered. Garnishment rules alsoraise issues. For example, some benefit payments areprotected from garnishment (e.g., Social Security pay-ments), and accounts that commingle funds mustbe able to account for any garnishment activity.The Durbin Amendment, included in the Dodd-FrankAct, restricts the interchange fees banks can receive fromelectronic debit transactions, including prepaid cards.However, the rules exempt some cards, including smallissuers (those banks with assets less than $10 billion), gov-ernment-administered programs (those issued by federal,state, or local governments), and certain reloadable cards(for example, cards issued to access flexible spending ac-counts, when the card is the only means to access thosefunds).13For some financial institutions, limiting the abil-ity to capture interchange fees may limit the cards’ appeal.It is clear that any multiple-purse card loaded with non-government funds (such as wages or salary) would becovered by the Durbin Amendment’s interchange feelimits. Not only might this be a disincentive for financialinstitutions but it might also limit innovation. Data fromthe Federal Reserve show that in the last quarter of 2011,exempt transactions accounted for 82 percent of thenumber of prepaid card transactions and 83 percent ofthe dollar value of prepaid card transactions. On average,covered prepaid transactions had a lower value com-pared with exempt transactions ($31.35 versus $33.61).14Consumer AcceptanceThe prepaid card market is still relatively new, andwe continue to learn about how consumers relate tothese products and services. Unlike private card pro-grams, in which consumers choose the card, consum-ers typically do not choose the card for government
  22. 22. 23Hudson Institute Center for Financial Services Innovationpayments – it is chosen for them. It would be help-ful to learn more about use patterns to better matchcard services and features with consumer needs.In a study by CFSI and the Federal Reserve Bank ofPhiladelphia, use patterns took the shape of a U. That is,a lot of consumers used the card only once to get mostor all of the cash from it (a “one and done” profile) whilemany others made extensive use of the card; there werevery few in between.15Some consumers make sparinguse of ATMs. Some are comfort-able using digital formats to paybills (online or mobile bill pay-ing), while others prefer tangiblemethods such as money orders orcash. While some consumers willbe enthusiastic about additionalprepaid opportunities, the attitudesand views of those who do not willrequire careful study. Those whomistrust banks may be more trust-ing when government is involved.As more people develop a his-tory with prepaid cards, accept-ance among government paymentrecipients will likely increase. Also, a generational fac-tor may be at play—younger consumers who are “digi-tal natives” may be more experienced and comfort-able using prepaid cards, and may actually prefer them.NEXT STEPSGovernment payment cards have a tremendous poten-tial to enhance financial inclusion for millions of U.S.consumers. However, for those who administer paymentcard programs, greater financial inclusion is either notpart of what they perceive as their mission or not a cur-rent priority. Making the leap willrequire pioneers or entrepreneurswilling to demonstrate how theconcepts work. Leadership mightemerge from anywhere—the publicsector, organizations that are trustedintermediaries of payment recipients,social entrepreneurs who see anopportunity to leverage new pathsto financial inclusion, and privateindustry, motivated by profit, seek-ing to better meet consumer needs.FederalProgramsThe federal government is poised to be a leader inmoving people to electronic payment. Its electronic-only policy for recurring payments that took effectin March 2013 was a milestone in moving millions ofindividuals from paper checks to electronic payment.There are several opportunities on the horizon forexpanding the federal government’s role in the pay-ments arena relating to Direct Express, income tax re-funds, and coordination among federal-level programs.15 See “Consumers’Use of Prepaid Cards.”The availability oftechnology to consumersto make transactionswithout banks raises thequestion of whether theunbanked vs. bankeddistinction will matter inthe future.
  23. 23. 24Hudson Institute Center for Financial Services InnovationDirect ExpressThe solicitation for the next round of Direct Express pay-ment cards provides an opportunity to put this agenda towork. For example, financial institutions could offer a ba-sic prepaid card product with government-specified func-tions while also offering add-ons to address a wider varietyof consumer needs. Direct Express could be reloadablewith government funds only or with non-governmentalfunds as well. The government could partner with indus-try and nonprofit groups to provide benefit recipientswith tools and services to improve financial capability.Whether the government makes a single prod-uct or multiple GPR products available to ben-efit recipients, the products would have to meetcertain consumer protection and quality standards.Income Tax Refund PaymentsBecause many refund recipients are unbanked, taxrefunds account for a large number of federal paperchecks. In 2011, the Treasury Department piloted theMyAccountCard, designed to deliver tax refunds via a re-loadable prepaid card, with mixed results.The experiencewith a payment card for nonrecurring, periodic paymentslike income tax refunds shows the need for a closer under-standing of how taxpayers think about refunds and otherparts of their financial lives. Options for next steps include:• Carry out consumer research about attitudes andpreferences that will better specify a more appeal-ing card product to improve the targeting, delivery,and consumer adoption of the prepaid card account.• Allow tax filers to sign up directly on the tax form,or incorporate sign-up into tax filing software.• Specify basic features and fees for the card programand offer a choice among multiple cards that meetconsumer protection and quality standards. Card of-fers could be keyed to the consumer’s zip code toallow local banks to compete for these consumers.Coordination Among Federal Programs andthe Federal-State NexusIn terms of their relationship with the federal govern-ment, state program administrators operate across awide spectrum. At one end, the TANF program is ablock grant, and the federal government provides lit-tle guidance.16At the other end, states must clearpayment system RFPs for SNAP ahead of time withthe U.S. Department of Agriculture. In the middleis unemployment insurance, where the Departmentof Labor has issued a best practices document.17None of the agencies has suggested that a state could usethe payments system to promote financial inclusion andimprove financial capability. In part this reflects the goalsand priorities of those who administer federal programs.Some involved with government payment policy readthe history of government trying to get away from paperchecks as a story in which simplicity succeeds and com-plexity fails. Leadership from outside program agenciescould increase the likelihood that something will happen.It might come from some other agency or from a changein federal law or policy to make leveraging opportunitiesfor financial inclusion part of agency administrators’ jobs.States have realized economies from com-bining SNAP and TANF onto a single card.Broadening benefit cards to include other fea-tures, such as a reloadable purse and access to toolsthat help build financial capability, is a next step.Other options for the federal government include:• Provide guidance outlining a vision for the futureof payment cards in state programs, addressingsuch issues as integrating multiple programs on asingle card, reloadability, and other approaches tobroaden financial inclusion and the financial capa-bility of recipients. An interagency memorandum ofunderstanding between the federal agencies withcash benefit programs administered by states—the16 The strong exception is a provision contained in the Middle Class Tax Relief and Jobs Creation Act of 2012, signed on February 22, 2012. Thatlegislation responded to media accounts of locations where recipients accessed funds and requires that states assure that funds not be accessed atliquor stores, casinos or gaming establishments, or retail establishments that provide adult-oriented entertainment in which performers disrobe orperform in an unclothed state for entertainment.17 Employment and Training Administration, “Best Practices for Payment of Unemployment Compensation (UC) by Debit Cards,” UnemploymentInsurance Program letter No. 34-09, August 21, 2009.
  24. 24. 25Hudson Institute Center for Financial Services InnovationDepartments of Agriculture, Health and HumanServices (HHS), and Labor—would serve as a modelof interagency cooperation and collaboration.• Issue best practices guidelines for card programs andidentify problematic practices for consumers. Theseguidelines should address consumer and regulatoryissues (e.g., how to meet “know your customer” re-quirements). This would require interaction acrossarms of the federal government that have not hadreason to interact before: those that administer pro-grams (Agriculture, HHS, Labor, Treasury) and thoseresponsible for supervising financial institutions(CFPB, FDIC, the Federal Reserve Board, NationalCredit Union Administration, Office of the Controllerof the Currency, State Banking Supervisors).• Conduct or fund research to better understandconsumer preferences with regard to prepaid cardproducts and to identify best practices in their de-sign and delivery. Program agencies such as HHSand Agriculture administer programs that seek toincrease self-sufficiency, an outcome with a financialcomponent. This overlap should lead to cooperationamong agencies to develop a joint research agenda.State ProgramsElectronic payment is now the norm for benefits adminis-tered by states. Every state offers some options for a cardalternative to paper checks or direct deposit in at least oneof its programs that transfer cash. At least four states havemoved ahead with non-reloadable tax-refund debit cards:Connecticut, Louisiana, Oklahoma, and South Carolina.States face strong incentives to design prepaid programsthat work for citizens. Any product that generates nega-tive attention, either from informal views shared amongparticipants or from media reports, can lower participa-tion. Understanding what features potential users value isa new challenge for states and their partner card issuers.As with other innovations in services provided by govern-ment, state agencies learn by watching, with many statesholding back until they see how the concept works inat least one other state. Thus, a state moving ahead witha particular model creates momentum among others.In general, states have opted for “one card, one ac-count,” and the card is not reloadable except withfunds from the program that issued the card. Themajor exception is states that have made bothTANF and SNAP available from the same card.Two state-administered programs—unemployment insur-ance and child support—have particular potential as aplatform for greater financial inclusion. Prepaid cardsfor unemployment insurance benefits could be lever-aged to serve as a payroll card for consumers return-ing to work. A similar option exists for child-supportrecipients who opt for a payment card over direct de-posit. In both cases, the state government could bargainfor better terms and protections than currently exist.Utah has demonstrated that one card can serve multipleprograms. But other states may have issues to resolvebefore a combined card becomes practical. For exam-ple, procurement cycles for payment products varyacross programs, and some computer systems may notwork well across multiple programs. In addition, statelaws restricting garnishment may pose a challenge.Some options for states include:• Try new models. State policy entrepreneurs havemultiple options to connect payment recipients withfinancial services and increase financial capability.The experience of states over time will show howdifferent models perform. Efforts at the state andlocal level that pursue reloadability can only workif federal regulators solve conceptual issues thatmight keep financial institutions from participating.• Synchronize procurement cycles. In many states, eachprogram has its own contract with a financial institu-tion for payment products. Innovation bringing moreprograms onto one platform is almost impossible un-lessstatesmoveprogramstoacommonrenewalcycle.• Combine multiple government benefit programpayment tools into one larger contract. Thiscan leverage more economies of scale. Explore
  25. 25. 26Hudson Institute Center for Financial Services Innovationbroader access by asking financial institutionsfor proposals to extend the reach of paymentcards through access to reloadable products.• Learn more about what features users value (makingresearch done by the federal government, industry, orthe research community helpful). As the federal gov-ernment’s experience shows, to develop an acceptedproduct requires listening to what people want andpresenting it to them in a way that encourages them tochoose it. Launch and market products accordingly.IndustryExpanding reloadability introduces concerns for govern-ment program managers and issuers. Rather than havingfunds loaded by a single entity (the government), financialinstitutions would have to deal with more, and more vari-able, sources. As a result, banks would likely rethink theirbusiness case for this market segment. What additionalrisks and costs would the bank face? How could it recoverthose costs? Would there be opportunities to recover thecosts from cardholders who used the reloadability feature?If there were limited opportunity to recover the costs, howwould banks change the terms they offered governmentsin their responses to government contracting requests? Ofcourse, if states moved from offering a single card to of-fering a choice of cards, the problem would be different.Government payments are computer-system intensive andhave become associated with larger banks. Innovationin prepaid cards, on the other hand, has been associ-ated more with smaller banks. These smaller institutionshave narrower product offerings than the large banks.Reaching the unbanked who participate in governmentprograms will be a relatively small market in the overallpattern of prepaid use. Innovative partnerships may benecessary to encourage smaller banks to get involved.Sharing with GovernmentFinancial institutions know much more about technologyand consumer financial behavior than do governmentofficials who administer payment systems. Their experi-ences can help government understand the potential anduse payment cards to do more for users. Industry canhelp educate government by sharing these experiences:• Share insights and research on consumer preferencesto help state and federal programs better understandhow to structure and deliver prepaid card accountsto participants.• Share the latest trends and best practices in the gov-ernment payments industry with state and federalprograms, as well as background on relevant emerg-ing technologies.• Inform government stakeholders about new, relevantpayment technologies and show concrete ways theycould be applied to payment cards to expand finan-cial access.• Encourage states and the federal government toadopt reloadability or other strategies for extend-ing the reach of government cards both formally(through the RFP process) and informally (individualconversations, conferences, marketing materials,etc.). Not only is there a market opportunity here(broader customer acquisition and higher revenuefrom higher card use both as accounts and overlonger time periods), but also government cards canbe market movers with new technologies.Nonprofits/Academics/Consumer AdvocatesMuch of industry knowledge is proprietary—there is lit-tle public knowledge about payment recipients and theirfinancial behaviors. Furthermore, the path to a paymentsystem that gives choice to government payment recipi-ents and provides a path to more capable payment prod-ucts may be better paved by others than by government.
  26. 26. 27Hudson Institute Center for Financial Services InnovationPayment recipients may be better served, with morechoices and access to a wider range of financial products,if governments “row” rather than “steer.” Nonprofits, aca-demics, and consumer advocates can be more flexibleand more nimble than government in doing the following:• Research and obtain more data on consumer prefer-ences and behavior with payment cards to help gov-ernments build appropriate expectations and informproduct development and rollout.• Support governments with this work to enhancethe chance that the development and deploymentof more financially inclusive government paymentcards will succeed.• Form an organization that can take over the “row-ing” from government—one that will work withfinancial institutions to develop consumer productsor administer a process for offering qualifying prod-ucts. Government could turn to this organization toprovide a range of products to payment recipients,because a nimbler organization could allow smalleror more geographically limited institutions to reachthem.
  27. 27. 28Hudson Institute Center for Financial Services InnovationGovernments at all levels have embraced the changesbrought about by new payment card technologies.And electronic payments have advantages for all par-ties: governments lower the cost of distributing ben-efits; the payments industry realizes further economiesof scale and greater revenue from wider use of thepayments network; and individuals have the secu-rity of knowing the check won’t be “lost in the mail.”But electronic payment methods can do more. They canserve as an entry into lower-cost, broader-function pay-ment tools that support recipients’ financial lives. Theycan increase choices among financial services and pro-vide a range of financial service functions. Their greatestpromise lies in their potential to help people improve theirfinancial health, whether through access to more infor-mation or a transition to increased use of higher-quality,more effective financial services. The same systems thatmade electronic payment possible can also provide toolsthat help people understand and plan their financial lives.Government payers can model the best possible pay-ment delivery vehicles. As governments select defaultpayment mechanisms, they can ensure that govern-ment payees are using high-quality products, takinginto account functionality, fees, and consumer pro-tections. The relationship of technology and financialinclusion will shape the potential of government pay-ment cards and other tools that look different fromtraditional bank accounts. This is the next generationof payment cards and financial inclusion products. CONCLUSION
  28. 28. 29Hudson Institute Center for Financial Services InnovationAPPENDIX A: Prepaid Card PrimerConsumers used to have two payment choices: pay now (with cash, check, or a debit card that accesses money in a bankaccount) or pay later (with a credit card that accesses a line of credit). But now consumers have a third choice: pay before.Consumers can place funds on a prepaid card that they can access in the future to make payments at stores or online.A prepaid card can be used in a closed loop or an open loop. In a closed loop, the information encoded on the card passesbetween a card reader and one issuer. Examples include cards for a single store or group of stores, such as a gas station chain,gift cards that can be used for a single company, or transit cards. In the government sector, electronic benefit transfers (EBT)such as the SNAP program (Supplemental Nutrition Assistance Program, formerly food stamps) administered by state govern-ments are a variation of a closed-loop, in that the card can only be used for designated food items.An open loop describes general-purpose cards, that is, cards that have a network logo and can be used at any merchant whoaccepts the card. Visa, MasterCard, and American Express are common examples. A merchant may be a brick and mortarstore, an online store, or a service provider—a category that ranges from doctors’ offices to taxi cabs. Some general-purposecards are single-load cards – for example, rebate or gift cards that have a network logo. Virtually all cards can be used at pointof sale and online. Many can be used at ATMs to get cash; in addition, it is possible to get cash back with a purchase – forexample, you buy $100 of groceries but ask the clerk to ring it up as $150, keeping the additional $50 in cash and avoidingan ATM fee.General-purpose reloadable cards (GPR) are gaining in popularity, with a growth rate of 46% per year.19Consumers canadd funds to a GPR once they have registered it with the issuer (this characteristic is called “reloadability”). Employers haveadopted GPR cards as a means to make payroll payments to employees who do not have, or who do not wish to use, bankaccounts for direct deposit of earnings. State and federal governments work with financial institutions to issue GPR cards todeliver benefits to program participants. These government-issued cards differ from the more widely available GPRs in thatfunds are only reloadable by the government, not by the consumer.While most prepaid card make use of a magnetic stripe on the back of the card to access payment networks, smart cardshave an embedded integrated circuit (called a chip). The chip allows much more data to be carried on the card than on themagnetic stripe cards. Some states use smart cards in the Women, Infants, and Children (WIC) nutrition assistance program.The card stores information about individual benefit packages, a complexity unique to WIC.Payment Networks. Payment Networks. Payment networks provide an electronic connection between someone who wants tomake a payment, a financial institution, and the payment recipient. The most common electronic payment experience todayinvolves swiping a magnetic-stripe card at a point-of-sale terminal. However, other technologies are becoming more com-mon. Near field communication (NFC) provides a contact-free way to connect to payment networks—transit systems, statesthat use EZPass, or the “wave and pay” systems at some gas stations, for example. Many smart phones are equipped with NFCtechnology as well. The magnetic-stripe card may someday give way to the mobile phone biometric identification, using voicerecognition, iris scans, or fingerprints to access payment networks.19 See Consumers’Use of Prepaid Cards.
  29. 29. 30Hudson Institute Center for Financial Services Innovation29Unemployment InsuranceTemporary Assistancefor Needy FamiliesChild Support PaymentsStateDirectdepositPrepaidcard ChecksPrepaidCard ChecksDirectdepositPrepaidCard ChecksOffers Infoon feesbeforeselectionAlabama YesYes(Mandatory) NoYes(Mandatory) No YesYes(Optional) Yes YesAlaska YesYes(Optional) YesYes(Mandatory) No YesYes(Optional) Yes NoArizona YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No NoArkansas YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No YesCalifornia NoYes(Mandatory) NoYes(Mandatory) Yes YesYes(Optional) Yes NoColorado YesYes(Mandatory) NoYes(Mandatory) No YesYes(Optional) Yes YesConnecticut YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No YesDelaware Yes No Yes No Yes YesYes(Mandatory) No YesDistrict ofColumbia YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No NoFlorida YesYes(Optional) YesYes(Mandatory) No YesYes(Mandatory) Yes YesGeorgia Yes No NoYes(Mandatory) No YesYes(Mandatory) No NoHawaii Yes No YesYes(Mandatory) No YesYes(Mandatory) No YesIdaho Yes Yes No Yes No Yes Yes No Yes(Optional) (Mandatory) (Mandatory)Illinois YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No YesIndiana NoYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No YesIowa YesYes(Mandatory) No No Yes YesYes(Mandatory) No NoKansas NoYes(Mandatory) NoYes(Mandatory) No YesYes(Optional) Yes YesKentucky Yes No Yes No Yes YesYes(Optional) Yes NoLouisiana YesYes(Mandatory) NoYes(Mandatory) No YesYes(Optional) Yes NoMaine YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No NoMaryland NoYes(Mandatory) NoYes(Optional) Yes YesYes(Optional) Yes NoMassachusetts Yes No YesYes(Mandatory) No YesYes(Mandatory) No YesMichigan YesYes(Optional) NoYes(Mandatory) No YesYes(Mandatory) No YesMinnesota YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No NoMississippi YesYes(Mandatory) NoYes(Mandatory) No YesYes(Optional) Yes NAIdaho YesYesNoYesNo YesYesNo YesKentucky Yes No Yes No Yes YesYes(Optional) Yes NoAPPENDIX B: State Programs and Prepaid QuestionsNote: Mandatory means that prepaid debit is mandatory for those who do not opt for direct deposit.
  30. 30. 31Hudson Institute Center for Financial Services Innovation29Unemployment InsuranceTemporary Assistancefor Needy FamiliesChild Support PaymentsStateDirectdepositPrepaidcard ChecksPrepaidCard ChecksDirectdepositPrepaidCard ChecksOffers Infoon feesbeforeselectionIdaho Yes Yes No Yes No Yes Yes No YesMissouri YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No YesMontana Yes No YesYes(Optional) Yes YesYes(Mandatory) No NoNebraska YesYes(Mandatory) No No Yes YesYes(Optional) Yes NoNevada NoYes(Optional) YesYes(Mandatory) No YesYes(Mandatory) No NoNew Yes No Yes Yes No Yes Yes No NoHampshire (Mandatory) (Mandatory)New Jersey YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No YesNew Mexico YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No YesNew York YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) Yes YesNorth Carolina YesYes(Mandatory) No No Yes YesYes(Mandatory) No NoNorth Dakota YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No NoOhio YesYes(Mandatory) NoYes(Optional) Yes YesYes(Mandatory) No NoOklahoma YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No NoOregon YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No YesPennsylvania YesYes(Mandatory) NoYes(Optional) Yes YesYes(Mandatory) No YesRhode Island YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No NoSouth Carolina YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No YesSouth Dakota YesYes(Mandatory) No No Yes YesYes(Mandatory) No NoTexas YesYes(Mandatory) NoYes(Mandatory) No YesYes(Optional) Yes YesUtah YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No YesVermont Yes No YesYes(Mandatory) No Yes No No NAVirginia YesYesNoYesYes YesYesYes YesTennessee YesYes(Mandatory) NoYes(Mandatory) No YesYes(Mandatory) No No(Mandatory) (Optional) (Optional)Washington Yes No YesYes(Mandatory)No YesYes(Mandatory)No NoWest Virginia YesYes(Optional) YesYes(Mandatory) No YesYes(Mandatory) No YesWisconsin Yes No Yes No Yes YesYes(Mandatory) No YesWyoming NoYes(Optional) Yes No Yes YesYes(Mandatory) No NoAPPENDIX B: State Programs and Prepaid Questions
  31. 31. 32Hudson Institute Center for Financial Services InnovationAPPENDIX C: Summary of Potential Strategies for Government Payment CardsThe government payment card allows access to a single account. Theaccount serves two purposes: to receive the government paymentand to accept deposits from the benefit recipient. The account contin-ues even if the recipient no longer receives the government payment.The government payment card allows access to two or more accounts.Government cash payment goes to one account or group of accountsthat is not reloadable with funds outside government programs. In addi-tion, there are one or more separate accounts for non-government funds.The account holder decides at the point of sale which account to use.The government payment card offers access to one account or an amountof funds that may be held in a larger account. In addition, the govern-ment facilitates access to a separate account. In one approach, enroll-ment in the program includes an opportunity to obtain a second cardthat is a general purpose reloadable card (GPRC). In another, the gov-ernment allows the payment card manager to market a separate GPRCproduct to those who receive government payments via prepaid cards.A private card program manager seeks to serve government payment re-cipients and enrolls them with no formal cooperation with governmentprograms. Cards may be freestanding, or they may be marketed underan agreement with a group allied with benefit recipients (e.g., AARP).Cards may be limited in purpose to payments, or they may be part of alarger bundle of services (e.g., bundled with a mobile phone contract).One card -one accountCards: 1Accounts: 1One card -multiple accountsCards: 1Accounts: 2 or moreJoint Marketing Cards: 2Accounts: 2Private cards Cards: 1Accounts: 1STRATEGY NUMBER OFCARDS/NUMBEROF ACCOUNTSDETAILS
  32. 32. 33Hudson Institute Center for Financial Services InnovationFee Category Fee Type AmountTotal Cost of Setup: Monthly Fee $X.00 Activation $X.00Add Money: Direct Deposit Free Cash (at a Store)* $X.00Get Cash: ATM* $X.00 Store Cash Back FreeSpend Money: Signature Free PIN $X.00Information: Call Customer Service $X.00 Online/Mobile Information* Free ATM Balance Inquiry” $X.00Caution: Replacement Card $X.00 Inactivity $X.00 ATM Decline $X.00Other fees may apply, see terms and conditions for details. *Third party fees may apply.www.XYZPrepaidCard.comXYZ Prepaid Card Co.Prepaid Card Fee SummaryAPPENDIX D: Better Disclosure for Prepaid CardsPrepaid cards have a significant weakness—theirconsumer protections do not serve current andprospective users well. Their fee disclosures inparticular need improvement.

 Companies typi-cally disclose their fees in a list or box, but theirdesign, content, and location vary widely andcan be more consumer-friendly. Card users needto be able to more easily determine the true costof a prepaid card and compare different productsbefore deciding which to purchase. To help con-sumers make informed choices, prepaid cardsshould be offered with a well-designed fee box.
The Center for Financial Services Innovation(CFSI), which has been following the develop-ment of prepaid cards since 2004, has designeda model fee disclosure box based on research oncurrent fee disclosure practices for GPR prepaidcards, best practices in disclosure for a variety offinancial and nonfinancial products, and data oncurrent prepaid card fees.
  33. 33. 34Hudson Institute Center for Financial Services InnovationAPPENDIX E: Compass Principles for Prepaid CardsThe U.S financial services industry faces several challenges, from increasing regulation to a fragmented mar-ketplace where millions don’t have what they need to manage their money in the short term while buildingassets for the future. Center for Financial Services Innovation, in partnership with a cross-section of industryparticipants, created the Compass Principles to help the industry take the lead in addressing these chal-lenges.20The Compass Principles are aspirational guidelines that help providers work toward a vision for thefuture in which financial services are safe and actively contribute to improving people’s lives:1. Embrace Inclusion: Responsibly expand access.2. Build Trust: Develop mutually beneficial products that deliverclear and consistent value.3. Promote Success: Drive positive consumer behavior through smart designand communication.4. Create opportunity: Provide options for upward mobility.Working with an advisory group, CFSI used the Compass Principles to ask “whatwould a prepaid card look like if were designed around these principles?” Theresult was the Compass Guide to Prepaid, released in 2012.21The Guide iden-tifies Core Practices (standards for high quality cards), Stretch Practices (additional best practice ideas forproviders looking to stretch beyond the basic requirements), and Next Generation Practices (these emphasizethe need for new models that actively contribute to improving people’s lives and deliver sustainable value toall consumers and providers).For example, the Core Practices address issues of product functionality (FDIC insurance, loads, payments, andwithdrawals), marketing and communications (fee disclosures, account term disclosures, and privacy policy),customer service and account information (access to balance and transaction history, customer service center,fraud and error resolution, and paper statements), and pricing design (pricing schedule and options, individualfees, and building a supportive customer-provider relationship).20 See the principles at Download the guide at
  34. 34. 35Hudson Institute Center for Financial Services InnovationAbout the Authors:Hanns KuttnerHanns Kuttner is a Senior Fellow at the Hudson Institute,working on the Institute’s Future of Innovation Initiative.His career spans the policy and research world. Duringthe presidency of George H.W. Bush, he was part of theWhite House domestic policy staff with responsibility forhealth and social service programs. Most recently, he was aresearch associate at the University of Michigan’s EconomicResearch Initiative on the Uninsured. He has also worked forthe federal agency which runs the Medicare and Medicaidprograms and advised the state of Illinois on restructuring itshuman service programs.Kuttner has an A.B. from Princeton University and receivedan M.A. degree from the Irving B. Harris Graduate School ofPublic Policy Studies at the University of Chicago.Rachel SchneiderRachel Schneider is Senior Vice President of Insights &Analytics for the Center for Financial Services Innovation.In this position, Ms. Schneider serves as an industry experton underserved consumers, identifying new innovationsand documenting trends. She coordinates relationshipswith academic and industry research partners to ensure thatCFSI’s research is timely, action-oriented and impactful.In addition, Ms. Schneider collaborates with financial ser-vices companies and others regarding strategy developmentand product design related to the underbanked market andoversees CFSI’s policy activities. A recognized thought lead-er, she has been quoted in the Huffington Post, AmericanBanker, CNBC, and other national media. Ms. Schneiderbegan her career as an investment banker at Merrill Lynch &Co. She holds a J.D./M.B.A. from the University of Chicago,and a B.A. from University of California, Berkeley.Jeanne HogarthJeanne Hogarth is Vice President of Policy for the Centerfor Financial Services Innovation. She works to strengthenCFSI’s policy and research programs and engagement ef-forts with government and other key stakeholders. Hogarthbrings substantIal experience to CFSI, most recently hav-ing worked for 17 years as an economist at the FederalReserve Board. At the Board, she led research projects onconsumer financial decision-making, financial services ac-cess and inclusion, and household economic stability. Priorto joining the Federal Reserve Board, Hogarth was a fac-ulty member in consumer economics at Cornell University.Hogarth received an M.S. and PhD in Family and ConsumerEconomics from The Ohio State University. She completeda B.S. in Education from Bowling Green State University.AcknowledgementsThe authors are grateful to the many individuals from stateand federal government who shared their views in a series ofinterviews. Individuals who work in a variety of niches in thepayments industry also generously shared their perspectives.Both sides were represented in a December 2012 workshopin which many of the ideas that appear in this report werepresented. We especially want to acknowledge the work ofDavid Newville for his work early on in the life of this project.This research was funded by the Annie E. Casey Foundation.We thank them for their support but acknowledge that thefindings and conclusions presented in this report are those ofthe authors alone and do not necessarily reflect the opinionsof the Foundation.The authors would like to give special thanks to CFSI’sExternal Relations team, including Cynthia Hunt, JessicaKumar and Maria Lajewski. We also want to thank SylviaLindman for her careful reading of our draft documents andJon Heiniger, our design consultant.© 2013 Center for Financial Services Innovation & HudsonInstituteALL RIGHTS RESERVED. This document contains material protectedunder International and Federal Copyright Laws and Treaties. Anyunauthorized reprint or use of this material is prohibited. No partof this document may be reproduced or transmitted in any form orby any means, electronic or mechanical, including photocopying,recording, or by any information storage and retrieval systemwithout express written permission from the Center for FinancialServices Innovation and the Hudson Institute.
  35. 35. 36Hudson Institute Center for Financial Services Innovation1015 15th Street, N.W., 6th FloorWashington, DC 20005Phone: 202-974-2400www.hudson.orgAbout CFSIThe Center for Financial Services Innovation (CFSI) is the nation’s leading authority on financial services for underserved consumers. Through in-sights gained by producing original research; promoting cross-sector collaboration; advising organizations and companies by offering specializedconsulting services; shaping public policy; and investing in nonprofit organizations and start-ups, CFSI delivers a deeply interconnected suite ofservices benefiting underserved consumers. Since 2004, CFSI has worked with leaders and innovators in the business, government and nonprofitsectors to transform the financial services landscape. For more on CFSI, go to the Hudson InstituteHudson Institute is a nonpartisan policy research organization dedicated to innovative research and analysis that promotes global security, pros-perity and freedom. Founded in 1961 by strategist Herman Kahn, Hudson Institute challenges conventional thinking and helps manage strategictransitions to the future through interdisciplinary studies in defense, international relations, economics, health care, technology, culture, and law.For more on the Hudson Institute, go to • NEW YORK • WASHINGTON, DC