In his final guest article for this year,
Matthew Lanford, head of
prepaid at MasterCard Europe, explores the potential of prepaid to
cut costs and improve efficiency in the government and public
sectors, particularly in areas such as social benefit distribution
and payroll distribution.

In this, my final contribution to CI
during 2009, I am going to complete my assessment of the
relationship between prepaid and its key stakeholder groups, by
placing a spotlight on the industry’s workings with government and
public sector organisations across Europe.

With the end of the year drawing near, the
body of statistical evidence indicating that the economic recession
has passed continues to mount. Regardless of whether this is
accurate, however, it is apparent that the issue of public spending
cuts will become one of the most hotly debated legacies of the

Nowhere will this debate be more intense than
within the corridors of political power. With a UK general election
approaching in 2010, for example, public spending has already
emerged as a key battleground between the major parties.

The political arguments driving this debate
are complex. Whatever your political views, however, it is definite
that countries burdened by growing national debts must at least
consider the options available to them in terms of cutting costs
and improving public sector efficiency. This mantra will apply
across Europe at national and municipal levels of government.

It is my belief that prepaid can contribute to
this process in Europe. Our industry can draw upon an impressive
track record of helping the public sector harness savings and
efficiencies in the United States. This has been founded largely
upon the use of prepaid cards as a means of distributing social

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The story does not, however, end there. Other
key chapters, focused upon the value prepaid can add to public
sector organisations in terms of promoting financial awareness
among citizens and setting a precedent for reducing economies’
dependency upon cash as a means of exchange, need also to be

Distributing social benefits in the

The origins of government and public sector
applications of prepaid can be traced to 1990s America. Uses at
this time included the replacement of paper-based food stamps by
prepaid electronic benefits transfer (EBT) cards.

The EBT system, which allows recipients to
authorise transfers of their government benefits from a Federal
account to a retailer as payment for goods and services received,
has since been implemented in every US state.

Realising savings through reducing the
administrative burden associated with paper trails drove this
interest and investment in prepaid. The momentum created has been
sustained to this day with successful programme examples including
the Direct Express MasterCard.

The programme, rolled out by the US Department
of the Treasury and the Social Security Administration, now gives
millions of underbanked American citizens, without access to bank
accounts, the option to receive social security and other federal
benefits payments via a prepaid card.

Take-up of the programme has been extensive,
with the US Department of the Treasury eager to laud the benefits
of prepaid over cash, including security and convenience, to
prospective cardholders. Official statistics now estimate that
annual savings of $44 million1 could be realised in the event that
all underbanked American citizens took up the prepaid card

Similar science was, meanwhile, applied by the
State of Georgia when introducing prepaid cards as a means of
supporting the quick and efficient distribution of child support
benefits. In this case, the current authority estimates indicate
savings of 82 percent2 have been made in relation to the costs of
distributing the child support benefits.

Disaster relief

Speed and efficiency return to the fore as we
turn to consider the application of prepaid cards in the middle of
natural disasters. The US has again paved the way here, with
prepaid cards being used to distribute payments to citizens from
all socio-economic backgrounds who have been affected by events of
this nature.

This was typified by the partnership between
JPMorgan Chase and the American Red Cross following Hurricanes
Isabelle and Katrina in 2003 and 2005 respectively. Both instances
saw the distribution of disaster relief funds via prepaid
MasterCards, issued by JPMorgan Chase and stockpiled in advance by
the US government as part of its programme of disaster response

For governments, programmes of this kind
afford the reassurance that relief funds are being channelled
directly to those most in need, while sweeping away the logistical
and security challenges associated with transporting and
distributing cash in a disaster area. The potential for funds to be
fed straight back into the local economy is also enhanced.

Meanwhile, displaced citizens are given scope
to seize back some control of their lives through managing money
and making spending decisions. Further, the cards themselves can be
specially designed to waive ATM fees and loading charges for

European adoption

European government and public sector
organisations are now beginning to replicate the US model. Examples
of prepaid in the face of natural disasters have not yet emerged
but instances of social benefits applications are increasing.
December 2008 saw the launch by the Italian Ministry of Economy and
Welfare of a new social card programme in Italy, involving the
issue of MasterCard prepaid cards to more than 1.3 million benefits
recipients by Poste Italiane, the government-owned postal

With a network of 14,000 branches providing a
ready-made logistics infrastructure, the programme has injected
additional speed and efficiency into the distribution of benefits
across Italy. This is particularly vital in a market long
characterised by economic stagnation and where the high costs of
banking services and cash payments have limited access to bank
accounts among workers.

Italy does not stand alone in this application
of prepaid. Moving east to Poland, municipal offices in more than
25 cities have now embraced prepaid as a mechanism for distributing
a range of unemployment, scholarship and disability benefits.4

Using a reloadable card issued by PKO Bank
Polski, cardholders can withdraw money from ATMs and pay for goods
and services at all Maestro acceptance points in Poland. Municipal
authorities benefit from the cost reductions and associated
administrative simplifications, while also receiving financial
incentives from central government for participating in the

In a market where independent research
undertaken by ASE in June 2009 suggests that 41 percent of people
aged over 15 do not have access to a current account, this
programme underlines once more the potential of prepaid to
streamline the benefits distribution process.

Corporate symmetry: government as an

The remit of government and public sector
organisations stretches of course far beyond the distribution of
welfare benefits and social security. The sector is also a major
employer, creating in itself another opportunity for prepaid.

As regular readers of CI will recall, I have
previously written extensively on the advantages offered by prepaid
to corporates in terms of supporting the payroll process. I don’t
propose to revisit these in detail here but several elements of the
case our industry must make to businesses when selling prepaid are
mirrored in the context of urging the public sector to embrace
prepaid applications.

Payroll-related issues are integral to this
discussion. As the social and economic priorities of nations
continue to evolve it is likely that the state apparatus will
increasingly require civil servants to work on a temporary or
seasonal basis. Prepaid-backed payroll solutions, which can be
rapidly and cost-effectively implemented in such situations, must
become an accepted part of this process.

In this sense, the private sector has already
thrown down the gauntlet. In June 2009, the independent research
study undertaken by ASE, which covered nine countries in Europe,
further cited Italy, the United Kingdom and Poland as the three
European markets offering most growth potential in terms of prepaid
payroll. Take-up in the private sector is increasing, leaving it up
to the public sector to follow suit.

Payroll, however, is just one component of
this case. As with corporates, public sector organisations can
benefit from providing prepaid cards to employees for everyday
business expenses, including travel and per diem allowances, as
well as funds for the procurement of low value items such as office

Again, the benefits transcend sectors, being
centred upon cutting the costs of processing paper-based expense
claims, creating an easily auditable trail of employee expenditure
and avoiding the financial risks associated with placing control of
unsecured credit lines in the hands of individual employees.

The use of payment cards, or more specifically
purchase cards, for procurement purposes, is already
well-established in the UK. Cards of this kind are typically used
for the procurement of low value high volume supplies and spending
on each card must be reconciled by a finance manager on a monthly

Manchester City Council was the first
authority to adopt such a scheme and similar programmes are now in
operation across the UK. While these are not prepaid programmes,
their advance is a positive in terms of helping build public sector
awareness of the cost savings, convenience and improvements to risk
management that payment cards can offer, creating in itself a
platform for prepaid to state its case.

Promoting financial

I have thus far confined my comments to the
potential contribution of prepaid to the efficient running of the
public sector apparatus. I do believe, however, that the sustained
growth of prepaid in this area depends also upon building awareness
of the benefits prepaid solutions can bring to societies as a

Tackling financial exclusion is a perennial
issue faced by governments across Europe. Responses to the
challenge have been diverse, with recent years witnessing the
advent of initiatives including the requirement of all banks in
Italy to offer a standard basic bank account providing such basic
functions as direct debit, credit transfer and a debit card.

The success of such initiatives remains a moot
point. Referring again to the research undertaken by ASE it is
clear that financial exclusion, defined in this context as a lack
of access to a fully transactional bank account, remains a
significant issue in European markets surveyed including the Czech
Republic, Ireland, Italy, Poland, Romania and Turkey.

Set in this context, prepaid offers
governments a means of addressing the challenge of financial
exclusion. This can be achieved either through the application of
state-owned networks, as in the case of Poste Italiane, or by
encouraging and incentivising the private sector to implement
prepaid-backed programmes as part of the payroll process.

In return for this investment, governments
have an opportunity to facilitate the offer to citizens of the
benefits of card-based payments over cash. Multiple advantages can
be cited, not least the personal security and convenience offered
by cards, but specific to prepaid the opportunity to control and
segment spending.

When coupled with the enhanced sense of status
attached to ownership of a payment card, the potential exists for
governments to achieve their financial inclusions aims while
generating voter goodwill.

Reducing economies’ cash

Crucially, the ASE study also draws direct
parallels between high levels of financial exclusion and the
dependency of economies upon cash. The impact of this dependency,
exacerbated in rural economies by a lack of access to banking
infrastructure, is something which has, in recent years attracted
attention from the European Commission as part of its campaign
against money laundering and financial crime.

That Brussels should be excited by this issue
is hardly surprising. The lack of a transparent audit trail
engendered by the cash dependency of any economy leads inevitably
to the proliferation of tax evasion and counterfeiting, while
heightening the challenge of enforcing labour laws, for example
those relating to minimum wage payments.

Governments across Europe are now moving to
drive cash from the system. In Italy, anti-tax avoidance provisions
contained within the 2007 Financial Law are serving to reduce the
use of cash payments, thereby reinforcing the drive towards
financial inclusion in that market by increasing the need for a
bank account.

For a growing number of Italian workers, this
legislation makes it necessary to have a bank account in order to
get paid.

Of course, the electronic payments
opportunities created under these circumstances are not exclusive
to prepaid cards. Prepaid however, is set apart by its capacity to
drive cash from the financial system without the need of direct
attachment to a bank account, firmly positioning it as a flexible,
easy-to-implement tool for governments seeking both greater
financial inclusion and cash usage reduction.

Assessing European

In 2008, independent research from PSE
Consulting, commissioned by MasterCard, estimated that total
spending on government and public sector programmes would account
for 7 percent ($13 billion) of total spending on prepaid cards by

For this potential to be realised, however, it
is imperative that the prepaid practitioners assess opportunities
for growth on a market by market basis, tailoring strategies
dependent upon local factors, including public sector structures
and the general disposition of authorities towards prepaid.

Recent analysis of the Turkish market by
Bloom/Cogar on behalf of MasterCard reflects this need. This
particular study identified the strategy development department of
the Turkish Ministry of Finance as being an area where, with
operational costs under the microscope, the use of prepaid cards
for purchasing purposes might be advantageous.

In contrast, the same study conceded that
opportunities for the use of prepaid cards for payroll and employee
benefits purposes by the public sector in Turkey remain limited.
This owes to existing laws which dictate that all government
employees and contractors must be paid via transfer to a bank
account. With this legislation having been framed before prepaid
had been envisaged as a solution, this situation seems unlikely to
change in the near future.

Similar complexities exist in the case of
Poland, where a separate Bloom/Cogar study, again on behalf of
MasterCard, identified the Union of Polish Municipalities as
offering the best market development opportunity for prepaid. Being
responsible for helping lower the cost of providing benefits to
citizens, this agency is logically open to discussions centred upon
the advantages prepaid can offer.

Coming at a time when social services offices
in Poland are continuing to expand the use of prepaid cards to
deliver social benefits, including the afore-described PKO Bank
Polski MasterCard branded programmes, the common ground existing
here between the public sector and prepaid broadens further.

Switching attention momentarily to the Czech
Republic returns us to a theme which has permeated through all of
my contributions to CI during 2009, namely that of education.
Subjected once again to examination by Bloom/Cogar, the defining
characteristic of this market was limited awareness or
understanding of prepaid cards at any level of government.

Further analysis, however, reveals
opportunities even in this context. The Czech government is as keen
as any of its international counterparts to improve operational
efficiency. Opportunities for prepaid to access the public sector
here may emerge as the existing reliance upon paper-based vouchers
and coupons for meal allowances is reviewed and the Ministry of
Labour and Social Affairs is required to implement, during the
course of 2010, a new split payment process for care

Despite being based on only a handful of
market examples from across Europe, this diversity in terms of the
operating landscape emphasises the need for thorough and effective
due diligence by any organisation intent upon leveraging the
prepaid opportunity via the public sector route.

Education holds the key

Back in May, I concluded my first contribution
to CI by stressing the absolute importance of everyone in the
prepaid industry banging the awareness drum and reaching consumers,
corporates and governments alike with the news that prepaid has now
evolved far beyond gifting.

During the intervening period, I am pleased to
be able to say from my own experience that such communication has
been plentiful from all corners of the prepaid community.

Nowhere, however, is the need for education
better demonstrated than in the context of the public sector. The
end of the recession will not necessarily signal a return to
continued public spending increases, and while best value continues
to sit at the heart of the public sector agenda, the door for
prepaid solutions will remain firmly open.

Despite this, the opportunities created will
only be seized fully if our industry can maintain a flexible
approach to dealing with the public sector, listening to its need
and wherever possible helping civil servants to overcome obstacles
which sit often beyond their control to implement new

If this can be achieved, a solid foundation
will have been built for sustaining a dialogue during which the
full range of potential benefits offered to states by prepaid can
be imparted.