Prepaid Schemes ‘Step out of the Shadows’ and Start Delivering Dividends for UK Government

Over £3BN of UK Government Payments could be modernised over next decade say industry experts

Governments across the world have switched to prepaid cards as a modern alternative to cash when it comes to distributing payments to its citizens who opt not to use bank transfers. However, the UK is only now starting to fully seize the opportunity according to industry experts.

Cash-based government payments are not only inconvenient and expensive to administer, but are also less secure and harder to track. Despite the UK being second only to Italy in Europe in its need to replace cash , with an estimated £3 billion of transfers each year, schemes are only now being adopted with enthusiasm.

According to the Prepaid International Forum (PIF), the not-for-profit trade body representing the prepaid financial services sector, political rather than practical issues have been the cause for slow uptake.

Alastair Graham, PIF spokesperson, comments, “Some early efforts to modernise payments were set back due to unwarranted fears that they would be used to unfairly restrict the spending habits of those in receipt of benefits. It was repeatedly claimed that benefit recipients would not be able to buy cigarettes or fast food with government prepaid cards”.

“The reputational fall-out from these public discussions made prepaid programmes hard to sell to the public. However, despite this, many programmes have become established and are thriving. They have gained acceptance from the public for their convenience and have helped to streamline administration for under-pressure government departments.

“This is good news for the UK, which has over £3 billion of payments each year that could benefit from a switch to prepaid cards. Sizeable savings can be made at a time when public spending is tight.

“It’s time for these schemes to step out of the shadows and be recognised for the valuable contribution they can make.”

One of the leading partners in helping government to implement such changes is allpay, a specialist in government payments. Its schemes, such as a recent project in partnership with City of Edinburgh, have led to the migration of more than 950 service user accounts from the Council’s existing provider, which included the transfer of more than £2 million in residual balances from the current supplier’s cards.

Since the start of the scheme there has been a total of £9.5 million loaded on to the cards and £6.5 million spent using the cards.

The cards are provided to members of the public who receive a Direct Payment to purchase services identified within their care plan, so the types of services purchased vary per person. These broadly cover care providers, individual personal assistants, respite facilities and day centres.

Many people us their card to make Faster Payments, as well as Direct Debits, shopping online and in stores. ATM withdrawals are not allowed.

Kevin McAdam, Director of Prepaid at allpay comments: “We’re seeing much greater acceptance from the Department of Work and Pensions for the benefits prepaid cards bring to schemes such as the distribution of Universal Credit. At the same time, local authorities and housing associations are increasingly switching to prepaid to help fulfil their social care obligations.

“As a result of this growing appetite we’ve recently established a number of similar schemes to that in Edinburgh across the UK and have more lined up to begin soon. It’s conceivable that over the next decade virtually all of the UK’s £3 billion of cash payments could have been replaced by prepaid.”

However, the push for prepaid isn’t solely to bring costs down and increase security. The wider goal of increasing social inclusion and preventing people from being excluded from the modern digital economy is also leading to calls for the switch from cash.

People who receive government benefits in cash, who may not have access to a full current account or credit card, can often find the cost of living increased. Research shows those who are financially excluded pay a ‘Poverty Premium’ as they are unable to shop online or benefit from Direct Debit discounts.

Research from The Financial Inclusion Commission estimates that two million people in the UK are financially excluded. Prepaid cards bring people into the financial fold and can begin to alleviate the Poverty Premium.

Steve Shirley, Vice President, Public Sector at Mastercard UK said, “Financial exclusion has a huge effect on people’s daily lives, and working with a wide range of partners, we are committed to driving financial inclusion in the UK and the rest of the world.

“In the UK, 200 public sector programmes across local authorities, National Health Service organisations, housing associations, social enterprises and charities are using transaction accounts powered by prepaid cards. These solutions are also being used to also distribute central welfare disbursements.”

ENDS

About PIF

The Prepaid International Forum (PIF) is the not-for-profit trade association representing the prepaid financial services sector. Driven by a belief that prepayment is a responsible way to pay for goods and services, and that consumers should be confident in the security of prepaid products and the money that is stored on their behalf, PIF advocates for policies and standards that enhance and protect the use of prepaid as a payment solution. The PIF membership represents every aspect of the prepaid value chain, from providers of prepaid products and services to card schemes, payment processors and a variety of other businesses aligned to the sector. For further information visit www.prepaidforum.org

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