Moving Tax-Refund Checks to Plastic

  Intuit's Web site prepares tax returns electronically, enabling unbanked users to automatically apply for and receive a prepaid card account into which they can have their tax refunds directly deposited. Will the young adults the company is trying to attract embrace the service?
  The Internal Revenue Service in recent years has had significant success replacing the costly distribution of paper checks for tax refunds with electronic deposits. In most cases, funds electronically deposited are placed directly into taxpayers' checking accounts.
  Not all U.S. consumers, however, have checking accounts into which the IRS can directly deposit tax refunds, so the IRS still must distribute refunds to most unbanked individuals by check. Over the past few years, though, the IRS has received some help overcoming this problem from leading tax-preparation firms H&R Block Tax Services Inc. and Jackson Hewitt Inc. Both companies have been working to enable the unbanked to accept tax refunds electronically using prepaid card accounts.
  Now, a tax-preparation software company Intuit Inc. is making its own contribution to help convert tax-refund checks to electronic deposits, also using prepaid cards.
  Regardless of whether funds are electronically deposited into card or checking accounts, financial institutions benefit from the elimination of costs associated with processing paper checks. But those institutions that also sponsor the prepaid cards for the tax-preparation companies receive a financial boost because they earn acquirer-paid interchange revenue each time the cards are used to make purchases.
  Of the 101.5 million tax refunds the IRS distributed last year for the 2003 tax year, 49.3 million were deposited directly into taxpayers' accounts. The direct-deposit total represented a 10.5% increase from the 44.6 million refunds that were deposited directly into taxpayers' accounts the previous tax year, when the IRS distributed a total of 99.6 million tax refunds, according to a spokesperson for the government agency.
  Tax Facts
  In 2004, the IRS distributed $215.8 billion in tax refunds, up 6.6% from $202.5 billion the previous year. Electronic deposits of tax refunds last year totaled $121.1 billion, up 15% from $105.3 billion the previous year, the spokesperson says.
  To support its prepaid card initiative, Intuit, whose flagship products include TurboTax, Quicken and QuickBooks software, is partnering with UniRush Financial Services LLC, which estimates there are more than 48 million unbanked Americans. Hip-hop mogul Russell Simmons founded New York-based UniRush, which is a joint venture of Rush Communications and UniFund Corp., to provide basic financial services to unbanked individuals via the Rush Prepaid Visa Card. The Rush card also plays a role in a partnership UniRush formed with Jackson Hewitt in late 2003.
  "It made sense for both [UniRush and Intuit], which had a common mindset," says Craig Marshall, Rush chief operating officer. "They wanted to help these individuals, too."
  Intuit's new RockYourRefund.com Web site initiative is designed for young adults 18 to 24 year old, about 25% of whom do not have a bank account, says Michael Maron, Web site director. Without a bank account, consumers cannot take advantage of the relatively quick tax refunds that users of direct deposit enjoy, he says.
  Faster Returns
  Consumers who file their tax return electronically and use direct deposit receive their tax refunds typically within seven to 10 days, Maron says. If the IRS has to mail the refund, the check might not arrive for several weeks. The average tax refund for individuals ages 18 to 24 is $900, Maron says.
  When consumers start to use the RockYourRefund.com site to prepare and send their tax returns, they are asked if they have a bank account into which they can have their refunds directly deposited. If they say no, they are asked if they would like to review an offer for the Rush card.
  If they agree to the offer, UniRush provides them immediately with a Rush card account and a bank-routing number for the direct deposit of the tax refund. They receive the actual Visa card by mail, typically within a week, Maron says.
  RockYourRefund.com charges $5.95 to prepare and send federal tax returns electronically, plus $9.95 for users who also file state returns. UniRush typically charges a $19.95 activation fee for a Rush card, but it is charging users of the RockYourRefund.com site $9.95 for a card. Users of the Web site also receive $50-off coupons for a personal computer and 10% off select electronics from Best Buy, or they can receive up to $200 off travel to a favorite destination.
  All Rush card users are charged $1 per PIN-based or signature-based debit purchase, up to a maximum $10 per month. They also pay $1.50 per domestic ATM withdrawal and $3.50 when using an ATM in another country. M&T Bank of Buffalo, N.Y., issues the Rush card. Columbus, Ga.-based Total System Services Inc., or TSYS, processes Rush card transactions, Marshall says.
  Marshall notes that UniRush continues to work with Parsippany, N.J.-based Jackson Hewitt, but participants need to have a Rush card already to have their tax refunds deposited into a card account. Rush cardholders who hire Jackson Hewitt to prepare their tax returns receive a $20-off coupon for those services, which average $140, he says.
  Kansas City-based H&R Block, meanwhile, is in the second year of a prepaid card pilot. In that initiative, Charlotte, N.C.-based Bank of America is offering some of the tax preparer's unbanked customers a card account called Debit Plus, says John Thomson, H&R Block director of refund and cash management. Sunrise, Fla.-based WildCard Systems processes the card transactions.
  Michele Laurin, BofA senior vice president, says "the numbers are pretty compelling" when one considers how many state and federal tax refunds the underserved receive by check each year. "It's a very large market to bring into the card world," she says.
  Customers can sign up for the accounts at any of the 200 H&R Block stores in select cities and have their refunds deposited directly into a Debit Plus account, which they can access with a Visa-branded prepaid debit card. Participating cities this year include San Francisco; Miami; Dallas; Tulsa, Okla.; El Paso, Texas; Fresno, Calif.; and Washington, D.C.
  In San Francisco and Miami the account set up is free, while in the other cities H&R Block charges $24.95 for a card, Thomson says. Cardholders are charged nothing when shopping with the plastic and pay $1.50 per ATM withdrawal after one free withdrawal. They can withdraw up to $1,000 per day from an ATM, or they can pay $10 per larger withdrawal up to $2,500 per day at a BofA branch, Thomson says.
  The pilot is designed to help determine the best product features and functions for customers and how best to incorporate the card program into H&R Block tax preparers' interviewing process, he says.