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©2013 MasterCard.Proprietary and Confidential
Ethan Carr, MasterCardAlexander A. Liu, Bank of America Merrill LynchBill Seaver, Commonwealth of Massachusetts
Payment card technologies: Assisting state agencies and benefitting recipients
August 12, 2013
©2013 MasterCard.Proprietary and Confidential
• World Beyond Cash
• Opportunities for Government Agencies
• Prepaid in Action
Agenda
Page 2
©2013 MasterCard.Proprietary and Confidential
Electronic Payments
World Beyond Cash
Ethan Carr, Business Leader – Public Sector
©2013 MasterCard.Proprietary and Confidential
Source: Aberdeen Group, September 2009,, RPMG 2007
Checks remain the principal form of payment. Small and medium-size transactions dominate payment activity.
Transactions by Payment Type
64% 76%
29% 13%
6%4%3% 6%
Checks
Card
ACH
Wire
Transactions Below $2,500
Transactions Between$2,500 - $10,000
76% of CFOs cite “lower invoice processing costs” as top AP goal
However, paper checks:
Can cost $1 to $5 per transaction
Offer little float, minimal controls, no visibility
Make fraud and misuse harder to detect
Do not earn rebates
Landscape of Commercial Payments
Page 4
©2013 MasterCard.Proprietary and Confidential
$ Avg Ticket Size
There are a variety of card-based solutions in market designed to address A/P-based spend categories
HIG
H
Strategic Importance / Level of Control Required
HIGHLOW
Supplier-InitiatedPayments
Traditional (Plastic) Cards
A/P Cards/Ghost Cards
MasterCard Purchase Control
(ie, Single and Multi use accounts)
MasterCard Buyer Initiated Payment (STP)
Level of Automation
Payment Automation Continuum
$2,500
$7,500
Buyer-Initiated Card (BIC) Key Metrics:
• The average transaction size for MC BIC programs implemented is $12K, or 10x higher than avg Card-based AP program
• The average amount of spend per supplier captured on BIC is over 20x higher than traditional purchasing card
EFT/ACH
Page 5
©2013 MasterCard.Proprietary and Confidential 6
Cash and checks have been losing share, both in terms of volume and transactions, to cards and other electronic payments
Electronic Payments now account for 63% of consumer payments in-store, online and to pay bills – up from 43% in 20012
And the trend is expected to continue: Purchase volume on checks dropped 22% from 2002 to 2007 and is expected to drop another 31% by 20121
1Source: The Nilson Report, November 2008, Issue 915, based on 2007 PCE of $9.710 trillion by U.S. Department of Commerce’s Bureau of Economic Analysis
2Source: Hitachi Consulting, Study of Consumer Payment Preferences, September 2008
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
2002 2007 2012
Vo
lum
e (
$B
illio
ns
)
Checks Cash Cards Other Electronic
20%
25%5%
11%57%49% 45%
37%
43%51% 55%
63%
0%
20%
40%
60%
80%
100%
2001 2003 2005 2008
Electronic Paper
Paper vs. Electronic Payment Transactions
©2013 MasterCard.Proprietary and Confidential
Prepaid is growing globallyOpen loop GDV growing at 22% CAGR to an estimated $822B in 2017
Canada$2 B
US$152 B
LAC$133 B
AP$54 B
Europe$149 B
MEA$46 B
Canada$19 B
US$421 B
LAC$15 B
MEA$3 B
Europe$28 B
AP$10 B
38%
2010 2017
CAGR
16%
37%
51%
27%
26%
Source: The Boston Consulting Group, January 2012
Projected Open loop prepaid growth 2010 – 2017
Page 7
©2013 MasterCard.Proprietary and Confidential
Payroll & Incentives
• Payroll• Incentives• Tax Refunds
Travel & Cash Management
Government Employee Benefit Social Benefit
Pro
gra
ms • Travel
– Infrequent travel– Per Diem– Relocation– Invitation travel– Other
• Purchasing
Pension & Social Security
• Pension benefits• Social Security
benefits
Public Assistance
• Child Support• Housing benefits• Unemployment• Jobs training programs• Commuter cards• Insurance claims• Immigrant cards
Emergency Assistance
• Disaster relief & emergency assistance
• Signature, PIN POS and ATM• Reloadable via secure PIN
based real time web based tool
• Activation via IVRU, Web or Customer Service
• Signature, PIN POS and ATM
• Personalized or non-personalized
• Reloadable• Activation via IVRU, Web or
Customer Service
• Personalized• Signature, PIN POS and ATM• PIN based security• Reloadable • Activation via IVRU, Web or
Customer Service• Zero liability for unauthorized
purchases*• MasterCard ATM Alliance• Multiple social benefits can be
offered on a single card (enhanced feature)
• Personalized• Signature, PIN POS and ATM• PIN based security• Reloadable • Activation via IVRU, Web or
Customer Service• Zero liability for unauthorized
purchases*• MasterCard ATM Alliance• Multiple social benefits can be
offered on a single card (enhanced feature)
• Signature, PIN POS and ATM• Instant issue cards that can be
mobilized within 24 hours (will require issuer/agency to maintain an inventory)
• MasterCard ATM Alliance• Reloadable• Activation via IVRU, Web or
Customer Service
Fe
atu
res
Aud
ien
ce
Legend Federal State & Local Non-Government Public Sector
* Conditions and exceptions apply, see http://www.mastercard.com/us/personal/en/cardholderservices/zeroliability
MasterCard Public Sector Solutions – At a Glance
Page 8
©2013 MasterCard.Proprietary and Confidential
2011 FDIC National Survey of Unbanked and Underbanked Households1
• 8.2 percent of US households are unbanked. This represents 1 in 12 households in the nation, or nearly 10 million in total.
• The proportion of unbanked households increased by an estimated 0.6 percentage point since the 2009 survey.
• 20.1 percent of US households are underbanked versus 18.2 percent in 2009. This represents one in five households, or 24 million households.
• 29.3 percent of households do not have a savings account, while about 10 percent do not have a checking account. About two-thirds of households have both checking and savings accounts.
Marketplace Trends - Un- and Under-banked
1Source: 2011 FDIC National Survey of Unbanked and Underbanked Households • September 2012
Page 9
©2013 MasterCard.Proprietary and Confidential
• Most US states utilize prepaid cards to disburse government benefits (UI- 43, CS-48, PIT-10 states), adopted primarily for cost savings through reducing check production and mailing
• Payment recipients without bank accounts benefit from faster, easier, more secure, and less expensive access to their funds (with cardholder fees trending down over time)
• Cardholders Fees: Identify educational and training/best practices tools industry has to lower or eliminate fees
• Two emerging trends in government prepaid programs:
1. Using the government prepaid program as a platform to launch financial literacy efforts:
• PayPerks in the U.S. Treasury’s Direct Express program
2. Emerging applications for the prepaid card:
• Residential ID/Prepaid Card
• Worker’s Compensation/Insurance Disbursement Card
The Next Stage in Government Prepaid
Page 10
3
align:right;flow:left
Opportunities for Government Agencies
12
Disclaimer
“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, capital markets, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, locally registered entities.
This document is intended for information purposes only and does not constitute a binding commitment to enter into any type of transaction or business relationship as a consequence of any information contained herein.
These materials have been prepared by one or more subsidiaries of Bank of America Corporation solely for the client or potential client to whom such materials are directly addressed and delivered (the “Company”) in connection with an actual or potential business relationship and may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with us. We assume no obligation to update or otherwise revise these materials, which speak as of the date of this presentation (or another date, if so noted) and are subject to change without notice. Under no circumstances may a copy of this presentation be shown, copied, transmitted or otherwise given to any person other than your authorized representatives. Products and services that may be referenced in the accompanying materials may be provided through one or more affiliates of Bank of America, N.A.
We are required to obtain, verify and record certain information that identifies our clients, which information includes the name and address of the client and other information that will allow us to identify the client in accordance with the USA Patriot Act (Title III of Pub. L. 107-56, as amended (signed into law October 26, 2001)) and such other laws, rules and regulations.
We do not provide legal, compliance, tax or accounting advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by us to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer.
For more information, including terms and conditions that apply to the service(s), please contact your Bank of America Merrill Lynch representative.
Investment Banking Affiliates are not banks. The securities and financial instruments sold, offered or recommended by Investment Banking Affiliates, including without limitation money market mutual funds, are not bank deposits, are not guaranteed by, and are not otherwise obligations of, any bank, thrift or other subsidiary of Bank of America Corporation (unless explicitly stated otherwise), and are not insured by the Federal Deposit Insurance Corporation (“FDIC”) or any other governmental agency (unless explicitly stated otherwise).
This document is intended for information purposes only and does not constitute investment advice or a recommendation or an offer or solicitation, and is not the basis for any contract to purchase or sell any security or other instrument, or for Investment Banking Affiliates or banking affiliates to enter into or arrange any type of transaction as a consequent of any information contained herein.
With respect to investments in money market mutual funds, you should carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. Although money market mutual funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in money market mutual funds. The value of investments and the income derived from them may go down as well as up and you may not get back your original investment. The level of yield may be subject to fluctuation and is not guaranteed. Changes in rates of exchange between currencies may cause the value of investments to decrease or increase.
We have adopted policies and guidelines designed to preserve the independence of our research analysts. These policies prohibit employees from offering research coverage, a favorable research rating or a specific price target or offering to change a research rating or price target as consideration for or an inducement to obtain business or other compensation.
Copyright 2013 Bank of America Corporation. Bank of America N.A., Member FDIC, Equal Housing Lender.
13
Paper disbursements are still prevalent
14
Key benefits for
government agencies
Prepaid Cards: A better alternative to paper checks
Save time
Reduce cost
Avoid disruption
Decrease risk
Improve compliance
12
34
5Control use6
15
Key benefits for
agency payees
Prepaid Cards: A better alternative to paper checks
Lower cost/risk
Quick access
Flexibility
Use everywhere
Protection
12
34
5No requirements6
16
The best programs deliver value to all stakeholders
Primary goal: Better servicing the recipients
Secondary goal: Savings for the agency, and for all tax payers
Understand the basic economics of prepaid
Recipients Agency Bank of America Merrill Lynch
Value
17
Keys to a successful program
Large program or small….
Understand the payment recipients
Over-communicate
Keep it simple
18
Conclusion
Save moneyStreamline payments
Direct DepositGovernment Prepaid Cards
For unbanked,
Government Prepaid Card … a
better alternative to paper checks
3
align:right;flow:left
Prepaid in Action
20
The Child Support Card
William Seaver, Commonwealth of Massachusetts
Page 20
21
Goals and Expectations
• Offer branded debit card as payment option with funds deposited into a client owned and federally insured account.
• Pay 95 % of support to custodial parents electronically via direct deposit or the Child Support Card
• Issue checks only for initial payments or based on specific exemptions
Page 21
22
• Minimize costs including fees and ATM surcharges to the customer and the IV-D agency
• Usable at Points-of-Sale for purchases and cash back (PIN or signature based)
• Nothing on the card to indicate that the funds are from child support payments
Goals and Expectations cont. Page 22
23
Benefits to the Customer
• No lost or stolen checks
• Payments continue uninterrupted when customer moves
• Convenient for both purchases and cash back
• No need to carry large amount of cash for purchases
• Money is available as soon as it is deposited
• Monthly account statement or access via the Web
Page 23
24
Benefits to DOR
• Fewer returned and replaced checks
• Savings of $ 990,000 per year for postage and check stock alone
• Decrease undistributed collections
• No misuse of checks (fraud)
• Less exception processing with banks – “stop” payments and voiding un-cashed checks
Page 24
25
9/30/2004 9/30/2005 9/30/2006 9/30/2007 9/30/2008 9/30/2009 9/30/2010 9/30/2011 9/30/20120
500,000
1,000,000
1,500,000
2,000,000
2,500,000
ChecksDirect DeposiDebit Card
Axis Title
Annual Number of Custodial Parent Disbursements by Check, Debit Card and Direct Deposit 2004 through 2012
Number of DisbursementsPage 25
26
2004 2005 2006 2007 2008 2009 2010 2011 2012 -
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Returned Checks 2004 through 2012
Returned Checks
FFY
Return ChecksPage 26
27
FFY 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
2000
4000
6000
8000
10000
12000
Number of un cashed stale checks from 2004 through 2012
Count
Un Cashed ChecksPage 27
28
Lessons Learned
• Do the Program Research
• Communicate with your Customers
• Phase your Implementation
Page 28
29
1. Do the Program Research
• Read the NACHA white paper on electronic payment methods
• Learn from states that have a debit card• Look at RFR’s issued by other states• Involve your computer staff early on• Hold a vendors’ conference – or two• Know what your vendors can offer • Know what will make them stay in or drop out
Page 29
30
2. Communicate with your Customers
• Send out newsletters and notices
• Newsletter to all customers – announcements on website
• Notice sent 21 days prior to account set up
• Second notice sent at the time of account set up
• 21 day lead time prior to disbursements
• Customer Service phone and Web Access for Customers
Page 30
31
3. Consider a Phased Implementation
• Initial phase restricted to cases closing from TANF in one Region only
• Second Phase all TANF closings State wide
• Third Phase 2000 Customers every two weeks
• Fourth Phase 2000 Customers every week
Page 31
32
4. Plan for Address Updates
• Consider a monthly account statement
• Decide on address priority
• Address updates from the IV-D agency to the vendor
• Address updates from the vendor
Page 32
33
Other Lessons
• Use the Regular ACH file to disburse to the vendor
• Try to plan for the un expected
• Think about how reversals will be handled
Page 33