American Banker reports that the Treasury Department is accepting bids from banks to administer a prepaid program to reduce the remaining 20% 0f benefit payments that are not direct deposit. A pilot with JPMorgan Chase has been successful and the Treasury intends to start the prepaid program in January and roll it out nationwide in no more than six months.
Only about 20% of Social Security payments, and some other benefits such as veterans' payments, are still made by checks, which is far more expensive than direct deposit, Sally Phillips, the director of electronic funds transfer strategy at the FMS, said in an interview Friday. Many of those recipients are unbanked.
A typical electronic direct deposit into a bank account costs the Treasury about 9 cents, while a check disbursement costs about 89 cents, Ms. Phillips said. There were 767 million benefit payments made in 2006, and converting the 20% made by check to direct deposit or prepaid debit cards could save the government $124 million a year, she said.
Note that check payments are TEN TIMES more expensive than direct deposit – and presumably these are the prices that the Fed is charging itself. The Fed is anticipating an increase in the number of payments as the baby boomers start retiring, so the impact may in fact be substantially more.
Yet, there will be some implementation challenges. Benefit recipients will choose whether or not to switch from check to prepaid card – the Fed is not prepared to make the transition mandatory "right away" as many of the current check recipients are unbanked.
Bids Sought for A Social Security Prepaid Program
Monday, September 17, 2007
By David Breitkopf