BNY to win Treasury's Direct Express benefits contract

BNY Mellon
Bank of New York is poised to win a contract to manage the Treasury Department's Direct Express debit card program for disbursing federal benefits, according to sources. The contract had been managed by Texas-based Comerica since 2008, but the lender said during its earnings call on Friday that it had not been selected to continue operating the program.
Bloomberg News

Bank of New York is expected to be chosen by the Treasury Department to take over a lucrative government contract previously held by Comerica Bank to operate the Direct Express debit card program serving unbanked and underbanked government beneficiaries, sources said. 

Though Bank of New York, the nation's oldest bank, is not a retail bank, it has been making a push into faster payments and laying the groundwork to expand payments to the underbanked. With the contract, BNY gains a free liquidity source of more than $3 billion in deposits a month. The New York-based bank dropped the word "Mellon," from its name last month.

Last year, BNY formed an alliance with MoCaFi, a Black-founded fintech platform, to provide payments through BNY's Vaia platform, which allows governments and corporate users to send disaster relief, financial aid and employee payroll payments to consumers who are underbanked.  

In 2021, BNY took part in the Treasury's financial agent mentor-protege program by expanding its relationship with Optus Bank, a $350 million-asset bank in Columbia, S.C. At the time, it gave Optus $3 million to supplement the institution's investments in low- and moderate-Income  communities.

The Treasury did not respond to a request for comment. BNY declined to comment. 

BNY executives have been forthcoming about their efforts to get real-time payment adoption

BNY executives also have said that the best way to close the income gap is to make long-term investments in underserved communities and to form unique partnerships. BNY is expected to offer FDIC-insured bank accounts, debit cards and credit reporting services to Direct Express consumers through the MoCaFi platform. 

Comerica disclosed on Friday that it had received preliminary notification from the Treasury that it was rejected in its bid to renew the Direct Express contract. The $71.8 billion-asset Texas bank's five-year contract with the Treasury expires in 2025. Comerica first won the contract in 2008, and it was renewed in 2014 and 2020. 

Comerica had a tough time operating the program. It faced allegations that it had shared sensitive consumer data with vendors, and failed to reimburse government beneficiaries who claimed their benefits had been stolen due to fraud. 

There is considerable interest among banks to adopt multiple faster payment services that run on bank-supported payment rails — including Zelle, Same Day ACH, The Clearing House's RTP network and the Federal Reserve's FedNow, though there is a stubborn lack of standardization among these systems. Request for Pay, also known as RfP, is one option that BNY has been pushing through upgrades to the technology behind RfP. 

An estimated 4.5% of U.S. households, or 5.9 million Americans were unbanked in 2021, meaning they did not have a checking or savings account at a bank or credit union. Another 14% of householders, or 18.7 million people are underbanked, holding at least one bank account. For the government, there is a dire need to digitize payments to unbanked and underbanked consumers, particularly given the massive amount of fraud in prepaid cards and checks sent through the U.S. Postal Service.

Real-time transactions in the U.S. are on pace to jump to 11.4 billion in 2026, up from 1.4 billion in 2021, according to Statista, but would still represent less than 4% of expected  payment transactions in the U.S.  

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