As benefit payments went digital, banks had to improve cash access

Most agencies use electronic benefit transfer to deliver funds to prepaid cards, but recipients who need access to cash are often caught in a bind, with fewer convenient or free ATMs available in an increasingly digital payments landscape.

U.S. EBT providers are recognizing the problem and many states and the federal government are making free ATM access a requirement for prepaid card programs, in part through negotiations with banks.

Access to a surcharge-free ATM network will play a role in the U.S. Treasury's decision expected soon on who wins a contract to issue cards for Direct Express, the government’s prepaid card program distributing $3 billion to 4.5 million unbanked Americans.

Cooper Neill/Bloomberg

Direct Express recipients are entitled to one free ATM withdrawal with each deposit, and they may also get cash back with purchases at retail stores, but many rely on ATMs for immediate cash.

According to the Bureau of the Fiscal Service, which manages the program for the Treasury, 67% of Direct Express recipients withdraw all of their funds within 24 hours of the deposit.

Texas-based Comerica, the incumbent issuing the Direct Express Mastercard, is competing to keep the business, along with a handful of other prepaid card issuers, each of which will be required to devise a feasible surcharge-free ATM access strategy.

A year ago, a yearlong series of third-party fraud attacks came to light affecting about 500 Direct Express customers, and Comerica weathered criticism from consumers and lawmakers for the way it responded.

Sen. Elizabeth Warren, D-Mass., called for new requirements to detect and resolve fraud within the Direct Express program as part of the next contract, which goes into effect in 2020.

Separately, several large U.S. banks recently began supplying free ATM access for many EBT recipients, in part from negotiations by Fidelity National Information Services, or FIS, which issues WIC and SNAP (food stamp) benefits through closed-loop prepaid cards in many states.

The catalyst for broadly waiving ATM fees for EBT recipients was a 2016 request by the California Department of Social Services that any contractor for its EBT prepaid card program include a large bank’s surcharge-free ATM network, according to Kim Bynan, senior vice president and head of EBT and Valutec at FIS. Bynan was one of PaymentsSource’s Most Influential Women in Payments in 2019.

“Historically banks have charged EBT recipients $3 for each ATM withdrawal, but most recipients are not just underbanked; they’re right at the poverty line, and these ATM fees cut right into critical funds,” Bynan said.

FIS last year added California to the list of 30 states where it delivers EBT benefits via cards, and FIS worked with several banks in California to waive ATM fees for FIS EBT cardholders statewide, Bynan said.

Bank of America went further by waiving ATM fees on FIS EBT cards nationwide last fall. JPMorgan Chase & Co. and Wells Fargo & Co. soon followed with free ATM access nationwide for the same group of recipients. Citibank has long waived ATM fees on many state-administered EBT withdrawals.

BofA had to weigh the feasibility of supporting free ATM access to FIS EBT cardholders at 16,000 ATMs, said April Schneider, head of consumer and small-business products at BofA.

“We wanted to make sure we had enough ATMs clustered where they were needed and that each machine could provide the full amount of cash on each EBT card,” she said.

Bynan said banks waiving ATM fees will save California EBT users alone more than $20 million a year.

One factor that may have eased banks’ decision to expand free ATM access to EBT recipients is the global reduction in interchange rates banks pay on ATM transactions, typically set by networks, which are passed through to ATM operators.

In the U.S., interchange revenue for surcharge-free EBT transactions last year fell from 33 cents per transaction to 3 cents, making it a tougher service for independent ATM operators to support, according to David Tente, executive director of the ATM Industry Association’s USA & Americas division.

“The potential outcome is that independent ATM operators may stop accepting surcharge-free EBT transactions, and while we haven’t seen that trend yet, the low-volume locations would be the first to go, as revenue from non-EBT transactions fails to subsidize the free transactions,” Tente said.

In the U.K., a similar problem affects ATM users broadly, not just recipients of government benefits.

Link, which administrates the U.K.’s biggest ATM network, has gradually cut the interchange fees it charges banks, so that many independent ATM operators are increasing fees to cover costs.

Along with the declining use of cash in the U.K., many small businesses catering to cash-centric consumers are feeling the pinch of fewer free ATMs.

That trend has not emerged in the U.S., where ATMs are still abundant. EBT agencies are making surcharge-free ATM network access part of the competition for prepaid card program bids.

The U.S. Treasury said it plans to announce a decision this summer on which issuer will win the Direct Express contract.