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By Adam Saytanides
Distributing government benefits via prepaid cards remains a rarity in the United Kingdom, but that appears likely to change both locally and nationwide.
"An open-loop solution is just on the cusp," David Parker, a consultant for London-based Pepper Corp., tells Prepaid Trends. Parker's firm is under contract to handle distribution of pension, housing, welfare and student benefits.
Meanwhile, two banks are getting into the business with cards for youth and housing benefits.
One example of a prepaid benefit card in the UK is the 'g2g,' or 'Got To Go,' card Cambridgeshire County authorities use to distribute benefits to underprivileged students. Raphaels Bank of London issues the cards, and London-based Altair Financial Services International Plc is the payment processor.
The card, which Cambirdgeshire introduced in April, provides funds for recreational and educational activities as an incentive to keep teenagers in school. Students who are eligible for the cards receive about $75 each month. A teacher, social worker or "skills officer" hands out the cards, demonstrates how the cards work and offers advice on how to use the funds responsibly.
The Maestro g2g debit cards have been a hit, says Simon Bates, project manager for Cambridgeshire County Council who was asked to find the right vendor to manage the prepaid scheme. Using prepaid cards made sense for the project because a voucher system becomes too labor intensive. The g2g Maestro card "gives young people the biggest range of choices," Bates says.
The county council saves funds because the Maestro-branded card has wide acceptance. The county does not need to spend funds on setting up a new system, recruiting merchants or managing an in-house program, Bates says.
Roughly 1,400 cardholders have used the g2g card, spending around $175,000 so far. The students can roll over funds from month to month, so they can save for more expensive activities, such as driving school or summer sports camp.
The youth-benefits card is still a test. But if the central government approves its extension, county authorities have decided they will continue to use the card, Bates says. Based on experiences with g2g, "other local authorities are also interested in going down the prepaid road as well," he says.
Bates is satisfied the g2g card has prevented abuse of the system. "You can't make Internet bookings; you can't get cash back; it doesn't work at ATMs; it doesn't work in pubs. Those are the main risks associated with the technology platform," he says.
Raphaels Bank is not alone in trying to move UK government benefits onto prepaid cards.
Alliance & Leicester PLC announced last month it was launching a prepaid card to distribute housing benefits for UK municipalities and counties. The Leicester-based commercial bank's foray comes as industry observers predict steady growth in the UK prepaid market for both local and nationwide government benefits.
The moves come "in the wake of the [UK] government's scheme to transfer payment of housing benefit to claimants, as opposed to their landlords," according to the bank.
Alliance & Leicester is aiming its prepaid offering at the 800,000 unbanked UK residents who receive housing benefits, the company says.
Parker notes that the features of prepaid cards work well with government benefits, such as the ability to track funds and provide instant access for benefits recipients. "For the recipient, they get the money instantly-no checks, no going [to the post office or government agency office] to collect," Parker says.
The recent Alliance & Leicester announcement–despite failing to name specific government clients–will be the first of many.
John Schratz, director of sales and marketing for Alliance & Leicester's prepaid cards division, says the bank is testing prepaid benefits for several housing associations across the UK.
Some want a closed-loop system in which claimants can access their benefits in a restricted, authorized environment, Schratz says. "Others actually are introducing the card as a quasi bank account," he says. "This increases the claimant's choice to access cash to pay for housing."
Recipients also can use the more flexible open-loop card for other purposes, such as car payments, for example, Schratz says.
He declines to say with which county or city councils the bank is negotiating.
However, the central government is talking to card providers about ways to introduce a prepaid scheme for benefits nationwide, Schratz says. "It's very much on the government agenda," he says. Authorities view the prepaid cards as a way to move benefits recipients away from checks or from obtaining cash from the post office and as an alternative to direct deposit, Schratz says.
Alliance & Leicester's prepaid division, and its competitors in the UK, view the current interest in prepaid benefits cards as a significant opportunity, Schratz says. "Many millions receive benefits, and it's a big challenge to make sure the customer experience is right," he says. "There's a lot riding on this; it's a big deal for those who are being invited to tender on this initiative."
Prepaid providers in the UK are excited about the government-benefits sector because of what they have seen happen already in the United States, Schratz says. "There are many initiatives where governments have found ways to use the product: for disasters, paternity payments, benefits and housing," he says. "It's going to be a huge part of prepaid in the UK."
