America is two months into battling one of the most sinister and deadly enemies we have ever faced as a nation. The government’s response to COVID-19, measured in trillions of dollars of relief and stimulus programs, is as unprecedented as the threat this virus presents to our economy and way of life.
Never in our nation’s history has so much relief money needed to be moved so quickly and securely. The logistics of making this happen are enormous and are shining a bright light on an old and particularly thorny problem in America: how to get money quickly and confidently into the hands of those who need it the most.
For all of the great progress we’ve made over the past decade in expanding the availability of high-quality, affordable financial services to underserved populations, the reality is that there continues to be a deep digital divide in America. This is the divide between those who are able to tap into a wealth of digital options for banking and payment transactions and those who lack the means to do so.
More than eight million households in America don’t have a basic bank account, either because they can’t afford one or because they lack the credit to get one. For these unbanked individuals, there is no option to receive the much-needed stimulus or relief funds by the fastest and cheapest means of direct deposit. Add to these numbers the more than 24 million underbanked households who regularly go out of the banking system for financial services and we begin to see the challenge facing the U.S. government in disbursing trillions of dollars of needed funds into the hands of struggling Americans.
For this large segment of individuals who live outside the digital divide, paper checks are the fallback method for distributing stimulus and other benefits payments. But check-based disbursements are hardly ideal. They take time to print and mail, they are prone to loss and fraud, and being paper-based, checks run the risk of being contaminated during handling. Then there are the cost inefficiencies and risks involved in taking that check to an expensive cash checking service or payday lender.
As we deal with the short-term challenge of getting trillions of dollars of relief and stimulus payments into the hands of citizens in the coming weeks and months, we as a country have a unique opportunity to put our unbanked and underbanked citizens on a long-term path to electronic payment methods.
One way to do this is by getting more of these individuals and families on direct deposit rails. We are encouraged by the Administration’s creation of a sign-up portal for eligible citizens to add or update their direct deposit account information for use in receiving their stimulus payments.
Another short-term solution that can lead to long-term progress is one that the U.S. government is already doing and familiar with – reloadable prepaid cards. Prepaid cards are already widely used for millions of Americans to efficiently receive Social Security (Direct Express), unemployment and welfare benefits including the USDA’s Supplemental Nutrition Assistance Program (SNAP).
The beauty of prepaid cards is that they work just like a debit and credit card and can be used by anyone, even those without a bank account. Moreover, it’s a tried and tested payment method: it’s low cost, it’s secure, and the cards can be used continuously for future follow-on payments, whether for pandemic relief or other government benefits payments.
Checks need to be cashed, which requires recipients to leave their homes, putting themselves and potentially others at risk during this time of social distancing and “stay at home” orders. Checks are also inefficient means of getting stimulus funds to unbanked and underbanked Americans who must give up part of their money to high-cost alternatives like payday lenders and check cashers. Prepaid cards, on the other hand, would allow stimulus recipients to purchase food and other essential items online from the comfort and safety of their homes.
On the federal side, using prepaid cards for distributing stimulus payments makes a lot of sense. The cards could be produced and put in the hands of citizens just as quickly or even more quickly than checks. Meanwhile, it would eliminate the need of sending follow-on checks in the event of further stimulus because additional funds could simply be electronically reloaded onto the cards, just as they are done via direct deposit methods.
Bridging the digital divide in America will not happen easily or overnight. It’s a complex problem that requires a multi-faceted approach. But taking these simple steps now, while we have the opportunity to do so, will take us a long way toward addressing this problem once and for all.
