U.S. Government Benefits Shift into Digital Age

Navigator Edition: May 2013
By: David Abraham and Sarah McCroy

The U.S. government provides billions of dollars to Americans through entitlement programs each year. The largest program is Social Security, which includes retirement pensions, disability income, and death and survivorship benefits. As of March 1, 2013, new Social Security benefit recipients will no longer have the option to receive monthly payments through checks. Recipients are provided with two alternatives for receiving payments: direct deposit or the Direct Express MasterCard issued by Comerica. The Treasury Department issued this mandate in 2011 to reduce the administrative costs associated with managing the program.

First Annapolis estimates that 88% of the 56 million Social Security recipients in 2012 received payments through direct deposit, while 6% received payments through a prepaid card. The remaining 6% continued to receive Social Security benefits via paper check. Although the Treasury Department has not set a firm date to end its use of paper checks, the government has indicated that these beneficiaries will be the target of extensive messaging and may automatically receive a reloadable prepaid card if they do not enroll in direct deposit.

Figure 1: Estimated Benefit Disbursement by Type
Source: 2013 U.S. Treasury Go Direct Press Release; 2013 National Consumer Law Center Survey of Unemployment Prepaid Cards; First Annapolis Consulting research and analysis.

While prepaid cards for Social Security account for a small share of payments relative to direct deposit, other government programs have experienced wider adoption. First Annapolis analyzed Department of Labor statistics and a recent National Consumer Law Center study which revealed that in 2012, an estimated 48% of the 102 million unemployment insurance recipients received benefits through a prepaid card. Only 2% were distributed through paper checks. Furthermore, of the 42 states that offer reloadable cards for unemployment, 90% to 100% of recipients in California, Indiana, Kansas, Maryland, and Nevada receive benefits via a card. In the handful of remaining states that issue paper checks, only 2-4% of funds are distributed through the mail.

The broad availability of prepaid cards across the country has helped drive prepaid adoption higher for unemployment insurance. In contrast, direct deposit is the most popular method for distributing Social Security benefits. This is likely a result of the fact that 81% of Americans over 65 take full advantage of the banking system, which is significantly higher than any other age group1. First Annapolis predicts the percentage of Social Security check recipients to decline to 1% by 2014, driven primarily by a comprehensive marketing effort by the government and the possibility of Direct Express cards being issued by fiat to those receiving checks. Although direct deposit will continue to be the most popular option for disbursements, First Annapolis estimates that prepaid card users will grow to 10% of total Social Security beneficiaries by 2015.

2011 FDIC National Survey of Unbanked and Underbanked Households

For more information, please contact David Abraham, Consultant,; or Sarah McCroy, Analyst, Both specialize in Deposit Access
and Payment Strategy.

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