Company Puts 'Official' Stamp On State Prepaid Card Programs

  Prepaid debit cards are becoming an increasingly popular payment device for states. And one of the largest acquirers of government tax payments now wants a piece of the prepaid card transaction pie.
  Official Payments Corp., a top acquirer of electronic tax payments, is moving further into the public prepaid card sector. The Reston, Va.-based subsidiary of Tier Technologies Inc. is partnering with Fidelity National Information Services Inc. of Jacksonville, Fla., to deliver prepaid cards instead of checks to recipients of government benefits.
  As part of a three-year agreement, Fidelity-formerly known as Certegy Inc.-will provide Official Payments with Visa-branded prepaid card-processing services. The products initially will be used for child-support disbursements. But recipients also will be able to access other government benefits over time on the same card, including unemployment insurance, tax refunds, disaster relief and Social Security benefits, says Jim Weaver, Tier Technologies president and CEO.
  Official Payments already is acquiring payments on Visa-branded prepaid cards issued by Minneapolis-based U.S. Bancorp to distribute child-support payments in Michigan. A state law passed last year requires most recipients to receive the funds via direct deposit or through prepaid debit card accounts.
  Michigan's program was launched in three counties in November and will be rolled out across the state this year. As of February, Michigan had nearly 630,000 child-support payments to process in the pilot, of which 427,329 were paper checks. The rest were paid via direct deposits into bank and prepaid card accounts. Michigan distributes more than $1.4 billion in child support payments annually.
  The cards can be used for purchases at retailers that accept Visa cards, and recipients can get cash back at 29,000 Michigan merchants connected to Visa's Interlink PIN-based point-of-sale debit network. Cardholders also can withdraw cash from ATMs, but they must pay any surcharges.
  Weaver says Official Payments-which acquired about $2 billion in government credit and debit card payments last year, up from about $1.5 billion in 2004-expects to support additional prepaid card-based child-support programs in 2006, but he declines to name the states. He predicts that states eventually will attach a myriad of payments from different agencies to a single card and that the partnership with Fidelity will enable Official Payments to support such efforts.
  Tim Kaliban, Fidelity vice president, product management, says his firm partnered with Official Payments so it could expand into the public payment arena. Fidelity provides gift card and other prepaid processing services to more than 1,000 financial institutions. The former Certegy also is known for its credit and debit card processing and risk assessment for checks written at merchant locations.
  "Official Payments' expertise in the government landscape is invaluable for us, and we would not be able to play a part in the space without such a strong associate," Kaliban says. "We bring to them our processing capacity and connections to the payments networks to support the prepaid side of programs."
  SAVINGS POTENTIAL
  Kaliban says more states will launch prepaid card programs because agencies can save several dollars per recipient per month in processing and distribution costs by eliminating paper checks.
  Tom Dailey, a Chicago-based financial industry consultant and former senior vice president at Discover Financial Services LLC, notes that the quickest adoption of prepaid cards will occur in programs with repeat transactions, such as child support or unemployment insurance. After the initial issuance of cards, agencies only pay pennies to fund each account on a single card, he says.
  Prepaid cards also are attractive because states are easily able to control the locations where funds are spend, if that function is necessary, Dailey adds.
  Still, while interest by agencies in prepaid cards is growing, widespread implementations will not occur until processors devise programs that mesh with the unique operational requirements of each state. Acquirers, for example, must find ways to comply with some states' rules that ban ATM owners from imposing surcharges to access benefits, notes David Lott, managing partner of Partners Consulting Group LLC, an Atlanta-based consultancy.
  Yet Lott says government prepaid card issuance is likely to grow because the processing foundation-including risk management capabilities-is largely in place, and prepaid card vendors for state payments have a lot to gain in transaction processing volume. "The public sector is attractive for processors and issuers because the recurring transactions will result in large volume gains," Lott adds.
  While Official Payments hopes to generate hundreds of thousands of additional monthly transactions over the next several years from state prepaid programs, the firm also is targeting other public prepaid card markets. The company, for example, is looking at prepaid card programs in secondary schools to support lunch programs.
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