skip navigation

Monday, December 22, 2014

[ – ] Text Size [ + ]  |  Print Page

Update Newsletter: Fall 2011

Center Stage: Government Use of the Payment Card System: Issuance, Acceptance, and Regulation

If you have ever used your credit or debit card to buy stamps at the post office, your purchase was part of the $9 billion in annual payment card volume to federal public-sector entities that operate as card-accepting merchants. Acceptance is just one way state and federal agencies use the payment card system in carrying out their missions. The General Services Administration manages $30 billion in annual spending through its SmartPay program, making the GSA the world’s largest commercial card client. In addition, a majority of states have adopted prepaid cards so that disbursements of unemployment, child support, and Temporary Assistance to Needy Families can be made electronically to individuals without bank deposit accounts, generating cost savings to the states and expediting the availability of funds to recipients.

Recognizing the significant use of the payment card system by state and federal agencies, the Payment Cards Center hosted a conference, “Government Use of the Payment Card System: Issuance, Acceptance, and Regulation,” on July 11 and 12, 2011. Distinguished panelists representing industry networks, issuers, and acquirers; state and federal government agencies; consumer advocacy groups; and academia assembled to discuss how the public sector is leveraging the infrastructure of the payment card system to make purchases, receive payments, and distribute funds.

In his opening remarks to the conference, the center’s director, Bob Hunt, observed that the payment card system exhibits characteristics of a general-purpose technology, a broadly adopted innovation with the potential to transform consumer and business activity. As the conference progressed, many of the points shared by the speakers substantiated Hunt’s assertion. Conferees learned that the partnerships between government and the card industry have cultivated innovative applications, built on the payment card infrastructure, that have subsequently been expanded to other commercial and consumer usage. In addition to cost savings, the public sector has reaped additional benefits from the card system through improved fraud control, expansion into virtual channels, enhanced management reporting, and data-enabled strategic sourcing. Panelist David Shea, director of the Office of Charge Card Management at the GSA, likened the payment card system to Lego bricks, with all the components available to be assembled and configured for a variety of purposes.

Along with the benefits, there are also areas of concern related to public-sector card programs. Consumer advocates warned of the potential for shifting the costs of distributing benefits through prepaid cards from the government to the beneficiaries through card fees. There are also challenges involved in advancing the previously unbanked along the learning curve once they have been provided with a prepaid card. Panelists also noted that the government itself, in its regulatory capacity, can threaten the viability of some of these card programs when regulations are poorly designed.

A conference summary is forthcoming.*

The conference concluded with a capstone panel composed of three eminent speakers: on the left, Professor Michael Barr, University of Michigan Law School; Professor Ronald Mann, Columbia Law School; and David Evans, far right, Chairman, Global Economics Group. Bob Hunt, second from right, moderated the panel.The conference concluded with a capstone panel composed of three eminent speakers: on the left, Professor Michael Barr, University of Michigan Law School; Professor Ronald Mann, Columbia Law School; and David Evans, far right, Chairman, Global Economics Group. Bob Hunt, second from right, moderated the panel.