Fiserv's Money Network on Feb. 15 will officially start managing the prepaid debit card program that distributes jobless and disability benefits in California. Bank of America's prepaid debit cards will remain active until April 15.
Bloomberg News
The core-banking software provider Fiserv is continuing its expansion into government benefits programs, with its Money Network unit picking up the California contract previously held by Bank of America.
Money Network on Feb. 15 will officially start managing the prepaid debit card program that distributes jobless and disability benefits for California's Employment Development Department. In January, the department began notifying 850,000 beneficiaries of the transition from BofA to Money Network. The state agency said that Money Network has been sending out new prepaid debit cards with microchips that would protect cardholders from fraud.
Fiserv, in Brookfield, Wisconsin, specializes in selling core banking systems and offers a range of products to 12,000 financial institutions. The company currently distributes government benefits via prepaid cards in 12 states.
"Enabling money movement is a core competency of Fiserv, and we have been providing payment solutions for the government sector for over a decade," said Ann Cave, Fiserv's spokeswoman.
The Money Network cards are being issued by My Banking Direct, a unit of Flagstar Bank. Flagstar — a subsidiary of New York Community Bancorp in Hicksville, New York — is the sponsor bank for the prepaid cards, providing federally insured cardholder accounts and access to the automated clearing house and card networks. Though Flagstar is Money Network's partner in California, the bank does not serve all Money Network cards, Cave said. As the state's program manager, Fiserv provides the technology and customer service.
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Bank of America's prepaid debit cards will remain active until April 15, which will mark the end of the $3.2 trillion-asset Charlotte, North Carolina, bank's involvement in distributing government unemployment benefits.
BofA faced financial and reputational risks in managing prepaid debit cards, which were heavy fraud targets during the pandemic.
In 2022, BofA was fined $225 million by federal regulators over allegations that it unlawfully froze consumer accounts in California, and for engaging in "unsafe or unsound practices" in distributing unemployment, disability and pandemic-relief benefits to consumers in 12 states. Just last month, regulators ordered U.S. Bank to pay $36 million for violations related to its prepaid card program to distribute unemployment benefits during the pandemic.
BofA had held the contract to administer California benefits since 2010. The bank had tried, unsuccessfully, to exit its contract with the Employment Development Department in mid-2021 due to financial risks. But the state agency had the option to extend BofA's contract for two years, which it did in 2021 and again in 2023. A department spokesperson said that as BofA's contract was ending, the agency picked Money Network in a competitive procurement process.
The department heaped praise on its new partner.
"Fiserv has the resources and secure systems we need to support the large number of customers who rely on EDD benefit programs, especially during periods of high demand in economic downturns," the department spokesperson said in an email. "Through Money Network, EDD customers will have access to secure chip cards and tap-to-pay technology to help protect EDD customers against fraud and skimming attacks."
The department has been plagued for years by antiquated technology that made it unable to provide direct deposit to beneficiaries, which increased the risk of fraud due to prepaid cards being sent in the mail. Many states' prepaid debit card programs were targeted by criminals during the pandemic, when members of organized crime rings and prison inmates applied for and obtained billions in jobless and disability benefits they were not entitled to collect.
In 2020, California's state auditor issued a scathing report that said the department had mailed 40 million letters with beneficiaries' Society Security numbers on them and then struggled to fix the problem, putting millions at risk of identity theft. The department spokesperson said the state is expected to begin offering direct deposit this spring through Money Network.
Earlier this month, Fiserv applied for a merchant acquirer limited-purpose bank charter in Georgia that would allow the technology giant to authorize, clear and settle debit and credit card transactions. Fiserv typically uses bank partners for payment processing. Cave said in an email that "Fiserv has no intention to become a traditional financial institution or regional bank."
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