The pitfalls of the second round of stimulus payments

The original coronavirus stimulus program in 2020 stumbled out of the gate, delaying payments for months and exposing America's lack of universal access to the financial system. With round two, it's the digital rails that are sputtering early on.

TurboTax on Friday publicly explained why many people have not gotten their automated stimulus deposits more than a week after the rescue package was signed into law and three days after the problem first came to light. The disbursements, called Economic Impact Payments, are on the way but may still be delayed, according to TurboTax.

Consumers who use digital tax services such as TurboTax, H&R Block and Jackson Hewitt were unable to receive stimulus payments because the IRS deposited the funds into temporary accounts that are no longer accessible.

The problem is seemingly the opposite of spring 2020, when the relative lack of direct deposit among Americans was blamed for delays of several weeks or more, as well as checks getting sent to deceased people or mailed to the wrong address.

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The sluggish payment performance during a time of economic peril drew attention to a longstanding problem. About half of Americans don't have a direct deposit account, and about a quarter are underbanked or unbanked, far less than Canada and most European nations.

Several solutions, such as a direct digital connection between the Federal Reserve and Americans, and the use of the United States Postal Service to ensure cash access, were suggested as Congress spent the next eight months working on a new round of funding for the PayCheck Protection Program, direct payments and other measures.

None of these measures have been adopted, and there's an added concern that delays in physical checks could spill into tax filing season, resulting in people asking for a credit on their taxes instead of a stimulus check.

There could also be added stimulus payments in the works, as New York Democratic Senator Chuck Schumer, who is taking over for Kentucky GOP Senator Mitch McConnell as majority leader, says more direct payments will be a top priority after President-elect Joe Biden is sworn in on Jan. 20.

There are some steps designed to improve performance of stimulus checks for round two. The IRS says more consumers who got checks in 2020 will get prepaid Visa cards, though it also said it does not determine prepaid card distribution. The Treasury is additionally attempting to distribute payments faster than during the first round.

The private sector also has also deployed new technology. PayPal and Ingo Money recently partnered to release a Venmo feature that allows consumers to deposit checks, including government disbursements, from Venmo's app. Neobanks Current and Chime have also added services to make stimulus payments available faster.

The Electronic Transactions Association estimates hundreds of thousands of EIP payments were sent directly to P2P accounts during the first round. ETA views the IRS' prepaid card program as a signal of the role digital payment firms will play in improving disbursements.

"The Treasury is once again relying on the speed and security of the digital payments industry and using 8 million prepaid cards to deliver the latest round of EIP payments," said Jodie Kelley, CEO of the ETA, in an email. In an earlier interview with PaymentsSource, Kelley said the slow rollout of the initial round of EIP provided lessons that could inform public/private partnerships to improve access and performance for government payments.

"The government has been able to speed up the second round of financial disbursements, in part because it has the information regarding individuals that should receive funds from the first effort," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group.

The first round was also hamstrung by messaging, with more content directly from the Trump administration in the form of letters that resembled campaign mailers than information from Treasury. The new envelopes for both the checks and prepaid cards will feature the Treasury's seal and instructions for using the prepaid cards.

"The government decided to prioritize quick deployment over saving costs," Sloane said, adding the new cards will use Fiserv, MetaBank and Visa rather than allowing consumers specify a prepaid card that's already in their possession, which required reissuance that drove up costs.