Treasury Transformations Government Prepaid Card Solutions 2011 NASC National Conference March 24, 2011│ Phoenix, AZ.

Treasury Transformations Government Prepaid Card Solutions2011 NASC National Conference

March 24, 2011│ Phoenix, AZ

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Government Prepaid Solutions

Prepaid solutions for government agencies have been developed to deliver increased efficiencies, significant cost savings and improved recipient payment/purchases experiences

Bank of America Merrill Lynch has over 12 years experience issuing innovative prepaid solutions to U.S. Federal, State and Local Governments

Program types range from payroll wages, to benefit payments, to disaster relief payments

Recently launched a program with the California Employment Development Department for the disbursement of unemployment, disability and paid family leave benefits which will be the largest State Disbursement Card program in the nation at full rollout

By the end of 2012, it is estimated that $196 Billion in government benefit payments will be made through a card solution

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Government Prepaid Segment Size By Type

32% 32%

16% 16%

22%

22%

10%

10%

12%

13%

2%

2%

6%

6%

$0

$50

$100

$150

$200

2010 2012$Billions

Govt Wages

Disaster

Welfare -- CS

State Tax Refund

Federal TaxRefund

Unemployment

Social Security

Government Benefit Type 2010 2012 CAGR

Social Security $56 $63 5.7%

Unemployment $29 $32 5.7%

Federal Tax Refund $38 $44 7.4%

State Tax Refund $18 $20 7.4%

Welfare & CS $22 $23 2.0%

Disaster $2.9 $3.0 1.6%

Govt Wages $10 $11 5.2%

All Government Benefits $176 $196 5.7%

$ in Billions

Social Security is the largest program

growing from $56B in 2010 to $63B in

2012, or 5.7% CAGR

Segment Size

Source: Visa Inc. U.S. Prepaid Industry Segment Study, 2011

Figures represent estimated prepaid industry opportunity and do not reflect anticipated Visa volumes, transactions or prepaid segment share.  The estimated opportunity sizing in this presentation is directional only and Visa is not responsible for any business decisions made using the enclosed data.

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Recipients of Government Disbursements Via Prepaid Card

Recipients of Government Benefits via a Prepaid Card

Targets underserved recipients defined as …

- 80 million consumers in the U.S. without a traditional deposit account or with limited access to credit

- These consumers received almost $1 trillion in payments from employers, states, government entities, insurance companies and others

- Over $1.5 billion in fees are paid to cash checks

Approximately 80M “Underserved”… (Population in Millions)

..with almost $1T in Income ($ Billions)

9.0

44.8

27.1

131.4282.3

541.3

Unbanked (no banking relationship)

Underbanked (low/ no credit score)

Recent Immigrants

Underserved Consumers

Source: Study commissioned by Visa and performed by Bearing Point in 2004/2005 using Department of Labor, Bureau of Statistics

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FDIC Profile of the Underserved

Target Customer is principally a cash user earning approx. $35K annually and using non-traditional providers for basic financial services

Unbanked estimated at 9.1MM households; Underbanked estimated at 21.3-26.3MM households

Average age between 41-44 years old

Household incomes range between $22,000 (unbanked) and just over $44,000 (underbanked)

Why are these consumers electing not to use retail banks?

- Product Gaps

Minimum balance requirements; don’t have enough money to need an account; don’t write checks; service charges are too high; too long to access my money/clear checks

- Service Gaps

Banks are not welcoming; don’t trust banks; don’t see value in having a bank account; inconvenient hours, not near where I live or work

Source: FDIC National Survey of Unbanked and Underbanked Households. A quantitative study sponsored by the FDIC, December 2009

Supporting Government Agencies

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Card Overview

A card solution helps agencies to remove checks and fully automate the

payment process

Targeted to underbanked recipients who do not have traditional bank accounts

Direct deposit option funded via ACH direct deposit process

FDIC-insured deposit accounts accessed by a branded card

Convenient, accurate and timely access to payment

Can be used everywhere debit cards are accepted – in stores, online, by phone

Bank of America offers zero liability on unauthorized transactions (subject to certain restrictions)

Cardholder customer service 24 hours a day

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Government Cost Savings

Elimination of check processing and distribution fees (postage, stop payments, etc.)

Faster disbursement of payments

No abandoned property administration – escheatment

Agencies can save upwards of $4.00/check with EFT disbursements

Allows agency to focus on servicing citizens

“Treasury must lead the way in developing methods to deliver payments that are safe and secure in a manner that is efficient and reliable. By moving to all-electronic

payment, Treasury will save hundreds of millions of dollars and substantially reduce our environmental impact, making this a win-win for all Americans.”

Treasury Secretary Timothy Geithner, 4/19/2010

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Recipient Benefits and Features

Benefits

Can save time through easy access to payment when using standard direct deposit availability of funds, and by eliminating waiting in lines to cash checks

Offers convenience as it can be used everywhere Visa debit cards are accepted and any ATM

Eliminates check-cashing costs

Features

Functions like a Check Card – in stores, online, phone, mail, pay bills

Account is FDIC-insured and zero liability on unauthorized purchases

Unlimited signature purchases at no cost and no daily limits on ATM withdrawals or purchases

Generally, negotiated amount of free access transactions on ATM withdrawals and Teller Cash Access transactions at network branded association member bank locations

Dedicated customer service and access to account information 24 hours a day via Internet, Automated Account Information, Customer Service Representative and ATMs

Replacement of lost/stolen/damaged cards

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Government Prepaid Solutions - Opportunities

Where have governments spent the most money for repetitive, frequently issued payments?

Social Security & Retirement

Income

Disaster Relief

Veterans Affairs

Payroll Child Support

Unemployment & Disability Insurance

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Government Prepaid Solutions - Opportunities

Emerging Government Disbursement Categories

T & E

Housing Authorities

Commercial Prepaid

TANF, Adoption & Foster Care

Tax Refunds

Current Arizona Agency Program Examples

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State of Arizona CashPay® Payroll Card Program

State of Arizona provides payments to more than 38,000 employees working for 120 agencies

Previously reached 90% - 94% direct deposit penetration, but needed an option for the underbanked

Launched CashPay Visa Payroll Card program in December 2009 with a goal to not only increase direct deposit penetration, but to also make financial life easier for underbanked employees having to deal with check-cashing hassles

Results

• Reduced warrant-related expenses

• Added a new benefit for underbanked employees

Keys to success

• Payroll management focus on efficiency and cost reduction, strong partnership with card issuer and an integrated communication plan across agencies

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State of Arizona Payroll Payments

37,0

06

38,2

51

39,3

27

39,5

84

36,9

62

35,5

54

35,7

84

333 291 281 202

68 100 97

4,567 4,340 4,202 3,050

2,040 2,359 2,288

79.6%81.9%

85.9% 87.6% 88.3% 89.2% 89.8%92.4% 94.6% 93.5% 93.8%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 3/11/11

Pay

men

ts o

n L

ast

Pay

roll

of

Yea

r .

Dir

ect

Dep

osi

t %

.

Years

Warrants (Exclusive)

Paid by Warrant & DD

Direct Deposit (Exclusive)

Direct Deposit %

12/09 CashPay Rollout12/31/09 Warrants Mailed from GAO12/08 Direct

Deposit Advice Print Elimination 12/30/10 Warrants

mailed from GAO

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State of Arizona CashPay® Payroll Card Program

Strategies Moving Forward

• Mandated Direct Deposit• Legislation in process

• Payroll Card is the Strategic Component of solution for the unbanked

• Provides employees opportunity to choose direct deposit options

• Payroll Card will be the option unless they choose another direct deposit method

• Retains ability to pay by warrant if needed

Keys to success• Effectively remove all obstacles to driving direct deposit

• Get your financial institution to help support your direct deposit initiatives

• Promote/list the banks that offer incentives for employees to sign up for direct deposit on your website

• Explore deposit incentives and strategies for your employees with your bank provider (Employee Fair or other event)

Results

• Continue to manage and drive efficiency to the extent practical

• Leverage the card solution concept to other government payments such as tax refunds

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ASRS Going Green!

Saving more than just our environment!

Leveraged existing payment card solutions to achieve economies of scale

ASRS Benefit Card launches April 2011

Traditional direct deposit remains first payment option

Electronic payment for everyone – if retiree does not provide a traditional deposit account for payments, an ASRS Benefit Card account will automatically be provided

Comprehensive communication plan through early direct mail efforts, check payment inserts and website content

Close to 4,000 retirement benefit recipients will receive cards in April

ASRS estimates an annual savings of $80,000 for postage and 25-30 hours per month of staff time

Arizona State Retirement System Benefit Card Program

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Arizona State Retirement System Benefit Card Program

ASRS Benefits

- Eliminates 25-30 hours of staff time:

Reconciling bank account and stale checks GL account

Reissuing checks

Reduces calls to the Call Center – members call Bank of America Merrill Lynch with questions

Reduces potential check fraud loss

Don’t have to deal with unclaimed checks

- Saves approximately $80,000 in annual postage

- Marketing support

- Dovetails with Social Security Administration Plans

As of March 1, 2011, individuals applying for and approved to receive Social Security benefits will have two options: debit cards and direct deposit.  Those who currently receive Social Security benefits via checks will be transitioned by March 1, 2013.

- It’s green!

Cons for the ASRS: Have to “re-tool” our retirement application process

Proposal - Phase 1: Start with new retirement checks (includes estimate checks) and lump sum payments – Refunds, Survivor Benefits, Forfeitures

Questions

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