Can New York's 'migrant prepaid card' boost financial inclusion?

Victor J. Blue/Bloomberg

A new high-profile prepaid card that enables asylum seekers in New York to buy groceries is a test of a financial inclusion method that the payment company behind the card plans to bring to more markets. 

New York City officials plan to soon begin distributing the cards to 500 families with children to use at bodegas, supermarkets, grocery and convenience stores for food and baby supplies. The program is meant to replace the current practice of delivering non-perishable food boxes to the families at temporary shelters, and is an attempt to enable the families to participate in the local economy while cutting overhead costs from the current system. The city has also attempted to expedite work permits for the new arrivals, potentially making the debit cards part of assimilating the families into the city.

"Many people take having an account for granted," said Wole Coaxum, CEO and founder of Mobility Capital Finance, or MoCaFi, the fintech that is partnering with the city to operate the program. "This is the first step for many into the financial system and the community." 

The cards are issued at the Roosevelt Hotel, one of the temporary shelters, and will be reloaded every 28 days. The amount will be up to $1,000 based on eligibility of the families, with factors including any income the families may have. The city is funding the cards and the broader program. Participants sign an affidavit saying they will use the cards only for groceries and baby supplies, and will be dismissed from the program for violations. 

If the pilot is successful, it may be expanded to as many as 15,000 families at the hotel and other sites where asylum seekers are staying, such as Floyd Bennett Field in Brooklyn and Randall's Island. 

New York's pilot program costs $53 million, though the city says it will save more than $7 million per year based on reductions in delivery expenses. Mayor Eric Adams' office did not provide comment for this story, nor did it provide the length of the pilot or its measures for success.

"Over time, as the city has had a chance to understand the power and capability of the prepaid cards, it wouldn't surprise me if there were added use cases," Coaxum said, adding that MoCaFi would also like to partner with other cities for similar programs. Other potential uses would be to enable access to more merchants, such as big box stores, where the families would buy clothing and other necessities.

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MoCaFi's business model is to boost access to banking products in traditionally underserved communities. The company's other partnerships include work with Mastercard to distribute contactless prepaid cards to New Orleans residents as part of an effort to expand financial literacy. MoCaFi has also partnered with BNY Mellon to enable digital disbursements for consumers who may be unbanked but still receive funds from BNY Mellon's government and business clients. 

"We see this new prepaid card as an opportunity to introduce new residents of New York to demand deposit accounts," Coaxum said. "That could be the framework for providing more financing services." 

Prepaid cards have been used for years as a way to serve consumers who don't have access to banks. The New York prepaid program resembles the Supplemental Nutrition Assistance Program. About 41 million people use prepaid cards linked to SNAP to receive food assistance each month. 

Reloadable prepaid cards are also used to reach gig economy workers and indigenous communities as a bridge to financial services. 

"Prepaid cards are a great option for inclusiveness," said Jordan Hirschfield, director of the prepaid advisory service at Javelin Strategy & Research, which reports that 20% of the unbanked or underbanked population in the U.S. uses general-purpose reloadable cards. "For the unbanked and underbanked, prepaid cards enable access to the most basic forms of commerce. Reloadable cards can act as de facto bank accounts for a population that is unable to become fully banked," Hirschfield said. 

The prepaid cards could provide a gateway for further use of the financial system, according to Elizabeth Rossiello, founder and CEO of AZA Finance, a fintech that's not involved with the New York program. AZA extends finance to underbanked markets in Africa, often by connecting financial companies from outside of the country to local populations for mobile money apps and similar products. 

Reducing friction in the financial system for demographics who do not yet have identification cards or local credit history is essential if you want these demographics to be financially active, Rossiello said. 

"Subsidizing the first steps for newcomers helps them more quickly build the credit and transaction history they need to catch up to their age-mates that are not refugees," Rossiello said. "Financially active demographics cost social services less money, contribute more to the community, and can raise healthier children that have more of a chance of success."

The New York prepaid card program has drawn controversy, primarily from conservative politicians. Texas Governor Greg Abbott, for example, has used the program as a platform to criticize broader immigration policy. The Abbott administration has sent many of the asylum seekers to New York. The total number is unclear, but a lawsuit New York has filed against transportation companies involved in the transport of asylum seekers says more than 33,000 have been transported to New York, 28,000 to Chicago, 12,000 to Washington, D.C., 13,800 to Denver and more than 1,000 to Los Angeles and Philadelphia.  The Texas governor's office did not provide comment. 

"The [New York prepaid] program is set up for people to buy food and baby supplies only," Coaxum said. "It puts money back into the economy."