It’s rare to see much fanfare around the launch of a mobile banking app these days. But for the U.S. Treasury Department, this milestone signals it’s nearing the end of its long quest to modernize the delivery of federal benefits—even for consumers locked out of traditional banking systems.
A mobile app for Direct Express, the MasterCard-branded benefits card issued by Comerica Bank, is now available to the roughly 4.5 million unbanked consumers who receive Social Security benefits.
The government is also well along in the process of converting the entire Direct Express prepaid card portfolio to the EMV standard, in accordance with a 2014 executive order from President Obama calling for chip-and-PIN security for all federal transactions, department officials said.
The new smartphone app isn’t fancy — it provides basic account-management services enabling users to check balances and find nearby ATMs, among a few other features — but its impact could be significant for several reasons.
Initial response suggests the app could take a big load off the Direct Express call center, which receives an average of 20 million calls a month, mainly from customers dialing in to check balances, confirm benefit deposits and purchase history, said Walt Henderson, director of the Electronic Funds Transfer Strategy division at the U.S. government’s Bureau of the Fiscal Service, which oversees the program.
Adding EMV security and mobile account access gives Direct Express cardholders "essentially the same" benefits as anyone with a basic bank account, including direct deposit, the full protection of Regulation E (which conventional checking accounts require) and the ability to instantly track account activity on a mobile device, Henderson said.
"We’ve brought people using Direct Express into the mainstream," he said. Direct Express cardholders also receive one free ATM withdrawal per month and pay 85 cents for subsequent withdrawals at a surcharge-free ATM.
Finally, coming on the eve of long-awaited new prepaid card regulations from the Consumer Financial Protection Bureau, the latest moves spotlight a product that has seen its share of controversy and hand-wringing in recent years over what its proper role should be in the financial services landscape.
Henderson didn’t comment on the regulatory environment surrounding prepaid cards, but he said Direct Express has provided "many positives" for users since it rolled out in 2008 to fulfill a 1996 congressional mandate to convert all recurring check payments to electronic channels.
"Lawmakers pushed to make payments electronic for everyone, but they didn’t anticipate there was [such a large] unbanked population," Henderson said, reflecting on the Treasury Dept.’s long road to fulfilling the mandate. "Before Direct Express, many of these unbanked people were paying up to $20 in check-cashing fees to get their Social Security benefits."
In 2013 that only about 32% of Direct Express cardholders had a smartphone, but by 2015 it rose to 53%, which triggered plans for a mobile app, Henderson said. About 78% of Direct Express cardholders with a smartphone use it to access their account online or via the app, and there are significantly more Android than iPhone users, based on the app’s download volume, he said.
The Direct Express Mobile App also supports financial education tools from PayPerks, available through the card’s website. Participants who complete educational modules are eligible win $1 to $50 in monthly sweepstakes, Henderson said.
The number of Direct Express cardholders hasn’t changed much in recent years, Henderson said. "People go in and out of the program, but the total number remains about the same."
So far about a third of all Direct Express cards have been upgraded to the EMV chip standard. "We’ll be distributing EMV cards with new accounts, and as existing cards expire or require replacement," he said.
Comerica, the original Direct Express issuer, won the contract renewal in 2014 after the government solicited bids.