Indiana Goes Completely Plastic

  States that dole out debit cards for funds distribution, such as court-ordered child-support payments, usually offer recipients other choices, such as a check or having the funds directly deposited into a bank account. The choice allows those with or without bank accounts similar convenient access to funds.
  One state, however, is converting its paper check-based unemployment compensation program to plastic without exception. "It is cleaner and much more efficient," says Monty Combs, deputy commissioner for the Indiana Department of Workforce Development.
  Indiana this year will put out for bid a contract to distribute unemployment compensation on prepaid debit cards. Combs says the state decided not to offer a direct-deposit option. "We want a unified system," he says.
  Having a unified unemployment compensation payment system will save the state an estimated $1.8 million annually, Combs says. The savings would be less by also offering direct deposits, he says.
  The state's total reliance on debit cards to distribute unemployment compensation could provide the winning bidder a bonanza of cardholders and transaction volume. In 2004, there were 263,548 unemployment claims in Indiana paid by check, according to the state's Workforce Development Department. There were 3.3 million unemployment claims paid that year worth $723.6 million. The state's average payment amount per week was $267.
  But Indiana will drive a hard bargain with the winning issuer, which will not be paid transaction or card-issuing fees and must operate an "extensive" ATM fleet in Indiana, according to preliminary bidding guidelines.
  Combs says the ATM-access provision is necessary for unemployment-compensation recipients to have convenient, free access to their funds. He presumes an issuer can make a profit from the unemployment program from the interchange it collects from merchants when the cards are used to make purchases.
  The prepaid debit cards can carry either the Visa or the MasterCard logo to support signature-based purchases. The successful bidder also will issue Indiana child-support payments, which similarly are going all plastic.
  Chris Jesmer, vice president of prepaid debit products for Minneapolis-based U.S. Bancorp, a leading issuer of state-sponsored prepaid debit cards, says interchange revenue from purchases using state-sponsored prepaid debit cards is more than enough to cover issuing expenses, even when a significant portion of recipients use direct deposit instead of prepaid cards. "Our state prepaid debit program has always been profitable," he says.
  Indiana is believed to be the first state to use prepaid debit cards and not allow direct deposit as an option. "I know of no other states completely using plastic," says Jesmer. He says the Indiana approach could significantly boost state-sponsored prepaid debit card transaction volumes.
  Indiana joins a growing number of states that are abandoning paper checks in favor of prepaid debit cards to pay out unemployment benefits. U.S. Bank's ReliaCard, a brand the bank created for state prepaid debit products, is used in eight states. Only one, Oregon, is using the ReliaCard to pay unemployment benefits. The rest are using the card to distribute child-support payments. All states using ReliaCard offer a direct-deposit option, Jesmer says.
  More states generally are putting a wide range of payments on prepaid debit cards, Jesmer says. "States looked at it initially as a child-support card," he says. "Now the states, when putting out bids, ask if you can put other government services on them, like unemployment."
  Recently, Louisiana began distributing Visa-branded prepaid debit cards, issued by J.P. Morgan Chase & Co., to hundreds of thousands of residents in that state who were left without jobs in the aftermath of Hurricane Katrina.
  Louisiana offers unemployment-compensation recipients a choice between plastic and direct deposit, says John A. Carriere Jr., assistant director at the Louisiana Department of Social Services. Carriere says Louisiana eventually intends to use prepaid debit cards for more state payments, including Temporary Assistance to Needy Families benefits.
  Indeed, the potential growth of state-sponsored prepaid debit cards has led U.S. Bank to bid for prepaid card contracts in states such as Indiana where the bank has only a handful of branches and ATMs.
  Jesmer notes that U.S. Bank can use its Fastbank, surcharge-free network of more than 10,000 ATMs nationwide, to meet Indiana's ATM requirement. "We do plan to bid for that contract," he says of Indiana.
  Chase is the largest bank in Indiana, where it has at least 175 branches, according to the Federal Deposit Insurance Corp.
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