First Bank Corporate Payment Systems Presentation to

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Prepaid Debit Cards Reducing Payment
Disbursement Costs and Complexity for State
Agencies Presented to National Association
of State Treasurers December 6, 2004
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Overview

• Card programs are designed to replace costly
  paper check payments
• Funds are deposited to the cards in the same
  manner as direct deposit - via the ACH network.
• Card provides recipients the convenience and
  security of a branded card product (Visa or
  MasterCard), but no credit is extended.
  Recipients have access to only the funds that
  have been distributed by the state agency.
• Cardholders have multiple ways to access their
  funds
• Signature-based purchases (Visa/MasterCard)
• PIN-based purchases (Interlink/Maestro)
• ATMs (Plus/Cirrus, etc)
• Bank tellers (Visa/MasterCard)
• Customer service is provided 24 / 7 / 365 by live
  and multilingual representatives

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Benefits to the States

• Reduced check expenses
• NACHA studies estimate government entities spend
  0.50 - 1.50 to issue physical checks
• No check production, delivery, reconciliation, or
  storage fees
• No check fraud or lost/stolen checks
• Universal eligibility
• More secure distribution of funds
• Card issuer assumes liability for card-based
  fraud
• Follows the same process and timing as direct
  deposit via the ACH network
• Enhanced recipient satisfaction
• Perception as governmental market leader
• Card issuer assumes escheatment liability of
  funds

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Benefits to the Cardholders

• The prestige of a branded card
• A lower cost alternative to check cashing
  facilities
• No stigma attached to cashing assistance checks
• 100 fraud protection for both the State and
  cardholders
• Monthly statements to track spending (both paper
  on-line)
• Pay bills online or over the phone
• Make Internet and catalog purchases
• Budgeting and/or savings mechanism

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Process Operations
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Process and Operations

• Account Enrollment - Accounts are typically
  opened by the state agency via batch transmission
  or web-based interface
• Cards are produced and delivered within 5 - 7
  business days
• Account Funding - Accounts are funded via the ACH
• ACH funding is accomplished through the existing
  direct deposit transmission process via the
  agencys current ACH originating bank.
• Card issuer will provide a specific ABA routing
  number mutually agreed upon account number
• Funds are available on the card at the same time
  they would be available in a checking account on
  direct deposit

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Account Funding - ACH Process
FTP
ACH
Government Agency
ACH originating bank receives file and transmits
to Fed
Fed routes ACH to receiving banks
Card issuing institution
Checking accounts
Agency creates direct deposit file
Card accounts
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Customer Service
- Name/Address Change - PIN Confirmation -
Disputes - Photocopies
Lost/Stolen Card Activation Balance
Inquiry Transaction History PIN
Management Name/Address Change Disputes Disburseme
nt Questions
1-866 IVR
Lost/Stolen Card Activation PIN
Management Name/Address Change Disputes
Start
State Agency
Cardholder Information Current Balance Transaction
History View/Print Statements PIN
Management Contact Information
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Marketing Communications
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Marketing and Communications

• Two distinct marketing strategies
• Optional direct deposit (into either
  checking/savings account or prepaid debit card)
• Response rates better if solicitation pieces
  speak to direct deposit into either a traditional
  account or a card as opposed to only a card
• Check inserts, direct mail, etc.
• On-going communications with recipients of paper
  checks (semi-annually)
• Mandatory direct deposit (into either
  checking/savings account or prepaid debit card)
• Recommend at least three mailings prior to card
  issuance
• Mailing 1 - Program introduction, direct
  deposit/card enrollment form
• Mailing 2 - Last Chance, must select either
  traditional direct deposit or card
• Mailing 3 - Your card is on the way / do not
  discard message
• Notices most effective if they look like a check.
  

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Card Marketing - Voluntary ProgramCheck Insert
Washington State - Dept. of Social and Health
Services
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Card Marketing - Mandatory ProgramMailing 1 -
Direct Deposit Introduction
South Dakota - Dept. of Social Services North
Dakota - Dept. of Human Resources
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Card Marketing - Mandatory ProgramMailing 2 -
Last Chance to Select Direct Deposit Method
South Dakota - Dept. of Social Services
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Card Marketing - Mandatory ProgramMailing 3 -
Card is on the Way
South Dakota - Dept. of Social Services
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Program Pricing
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Program Pricing

• Agency costs
• Typically limited to ACH-origination fees
• Cardholder fees - Can be a completely cost free
  program to cardholders
• No card issuance or monthly account fees
• Behavior that may result in cardholders being
  charged fees
• Excessive use of ATMs or bank tellers
• Excessive use of live customer service
  representatives
• Expedited card replacement
• Overdrafts

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Recommendations Results
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Recommendations - Card Issuance / Implementation

• Card Issuance / Implementation
• Issue cards in smaller batches (especially for
  mandatory direct deposit programs)
• Customer service implications for both state
  agency and card issuer
• State agency must update database prior to card
  issuance to insure names and addresses are
  correct

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Results

• Voluntary direct deposit program
• Moderate customer service liability for both
  agency and card issuer -- the recipient applied
  for the card
• Recipients rely on cash withdrawals early in the
  program, then migrate to POS as comfort level
  increases
• Mandatory direct deposit program
• More substantial customer service liability for
  both agency and card issuer -- some recipients
  may have limited experience with banks or bank
  card products
• Notifying cardholders with a notice in the form
  of a check significantly reduces the need to
  reissue cards to people who were not expecting
  them (and may have simply thrown them away)

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Q A
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Contact Information

• Chris Jesmer
• Vice President
• U.S. Bank - Prepaid Debit Products
• 651.205.2727
• chris.jesmer_at_usbank.com

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U.S. Bank
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U.S. Bank - Corporate Overview
6th Largest U.S. Financial Services Holding
Company
Ranking

• Asset Size 193 billion
• Deposits 116 billion
• Loans 123 billion
• Customers 11.6 million
• Primary Banking Region 24 states
• Bank Branches 2,300
• Branded ATMs 4,600
• NYSE Traded USB

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U.S. Bank - Retail Markets
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U.S. Bank Prepaid Debit State Disbursement
Programs
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