Director of Public Sector at Mastercard, Sam Mazloum explores why modernising welfare payments can be transformative for government and service user – and is not as difficult as it sounds
The UK public sector disburses over £100 billion in welfare payments every year, supporting millions of individuals and families with a wide range of needs and circumstances.
Traditional methods used to make welfare payments can be both expensive and limiting for the department as well as the service user, especially when compared to the opportunities offered by new payment products and services driven by the UK’s flourishing fintech sector.
Working together with over 200 local and central authorities, Mastercard and its customers are delivering programmes that support a range of services and government policy. These offer a real alternative to existing welfare disbursements. At the centre of these programmes is the ability to save financially, cut out inefficiencies in processes and improve visibility over transactions, whilst at the same time increasing the level of care provided to everyone being supported.
Close the cash office
Cash management is expensive. Whether supporting an emergency need for an individual or a whole community, or those with no recourse to public funds, prepaid cards offer a simpler, safer and more versatile way of getting funds to people when they need it most. With card acceptance ubiquitous in the UK, ATM access to withdraw funds in cash can also be restricted. The result is improved visibility of how funds are being spent and management information that can support safeguarding.
If a card is lost or stolen it can be simply cancelled and replaced, reducing the risk of crime associated with cash for the service user. If further funds need to be added to a prepaid card, this can be done without the need for the service user to visit the cash office or for public servants to make a home visit.
Prepaid cards remove the need to distribute cash. Where necessary, cash payments into your organisation can be made through the Post Office and local convenience stores. More and more councils and government departments are closing their cash offices. If you haven’t yet done so, it might be time to start thinking about it.
Reach more people and simplify direct payments
The introduction of the Care Act and the subsequent move to direct payments for longer-term care needs is providing better outcomes for service-users.
Direct payments have traditionally been made to personal bank accounts, but this presents local authorities and clinical commissioning groups with some challenges. To audit the service, it requires the individual to save bank statements and receipts and invoices and send them in monthly. The process is time intensive for the organisation and burdensome for the individual.
Prepaid programmes enable public sector organisations to provide transaction accounts that have the same functionality as basic bank accounts and more. Because the programmes are run by public sector organisations with the consent of the individual, they can automatically access financial information needed for audit, whilst at the same time saving the service user the burden of sending paper statements and receipts.
In addition, for many individuals, it can be challenging or impossible to get an account at one of the high street banks and therefore limits the number of services users that electronic direct payments can be made to. With prepaid programmes, the public-sector organisation is responsible for elements of the Know Your Customer process which means they can easily be provided to everyone regardless of their situation. This, combined with enhanced controls and alerts to support more vulnerable service-users, increases the number of people that direct payments can reach.
Universal Credit roll-out can support financial inclusion
By the time Universal Credit is fully rolled out, it will account for approximately £80 billion in payments. 20 percent of those that will receive it do not have a transaction account today. For this group, benefits will more than likely be paid through the Post Office Card Account. POCA is not an account that enables payments, but one that simply allows an individual to withdraw funds in cash from the Post Office.
Prepaid transaction accounts allow users to set up direct debits and standing orders, make card purchases in-store and online, check balances and expenditure online and withdraw cash using the ATM network. These accounts also can ring-fence funds for core spend such as rent and utilities and at the same time, they do not provide an overdraft or cheque facility, reducing the likelihood of unmanageable debt.
Initial trials using Mastercard prepaid cards to deliver Universal Credit have been extremely positive. The report on the Kent programme concluded that it: “demonstrated that prepaid cards have the potential to promote financial inclusion and independence, helping people manage their money and debts and widening options for financial management”.
The evidence shows that prepaid transaction accounts are a proven alternative form of electronic payments that should be used to support the roll-out of Universal Credit, not just for those who don’t have a bank account today, but for everyone that wants greater control and smarter management of their finances.
The Department for Work and Pensions could reduce some of the risks associated with Universal Credit and simultaneously improve the financial health of a significant proportion of the population by moving beyond the prepaid pilots and into full roll-out.
Local authority case study: Surrey County Council
Surrey County Council (SCC) provides benefits to members of the community that require special care, such as, young carers and those who are mentally and physically disabled. In the past, funding recipients were required to open a bank account to receive payment. This was an extremely, time intensive process as it required a great deal of administration on behalf of the council.
SCC partnered with Mastercard and Prepaid Financial Services (PFS), an electronic payments provider, in February 2015 to transform its direct payment programme for special care clients. Due to the nature of prepaid cards and the flexibility they provide, the council has evolved its usage to now include its deputyship and young carers programmes. Currently, there are more than 600 recipients enrolled in the programme with plans to expand the service in the next 12 months.
From SCC’s perspective, prepaid card usage has had major benefits to the Council’s everyday activities. All reconciliations can now be completed in one day compared to the 45 days needed previously. From a financial perspective, the cost-savings have been significant. From April – September 2016, SCC identified £400-450,000 of unused funds and reallocated the funding to other initiatives. Not only has SCC managed to streamline their services to be more cost efficient, users also enjoy an increased amount of flexibility and control over their care.
“For SCC, the prepaid card is so much more than just a piece of plastic. We now have all the information readily available to us in real-time, making it easier for us to do our job and provide a more flexible and streamlined service. Ultimately, this new transparent way of working has resulted in cost and time-savings”, comments John Amans, East Area Finance Team Manager, Adult Social Care at Surrey County Council.
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Director, Public Sector