Back in May thousands of consumers who rely on Walmart-branded prepaid cards were unable to make transactions that should have been approved. Some customers could not activate new cards or access their account balances online. The problems lasted for days.
Now details of the mess — which involved not only the Bentonville, Ark.-based retail giant, but also card issuer Green Dot and payment processor Mastercard — are coming to light. All three companies recently provided written accounts of what went wrong to a pair of U.S. senators, and copies of those letters were obtained by American Banker.
Among the revelations from Pasadena, Calif.-based Green Dot is that an estimated 58,561 customers were affected by the problems.
"While this event was limited both in scope and duration, any interruption in any part of our service to any of our customers is wholly unacceptable to Green Dot and its business partners," Green Dot Chief Executive Steve Streit wrote.
The three companies' letters came in response to a pointed series of questions about the incident from Sens. Sherrod Brown, D-Ohio, and Robert Menendez, D-N.J.
"A large proportion of unbanked households rely on prepaid cards for the same purposes that households associate with checking accounts: to pay for everyday purchase or bills and to receive paychecks," the senators wrote in June 28 letters to the three firms.
From May 14-16 Green Dot was migrating the processing services on just over two million active prepaid card accounts, the third stage in a four-part process that began late last year, according to Green Dot. The new processor was Mastercard's payment transaction services division.
In Mastercard's letter, the Purchase, N.Y.-based card network described a series of problems that arose. For some transactions, authorization holds were not released in a timely manner, and for others, duplicate authorization holds occurred. Some accounts temporarily had a lower transaction authorization limit than they were supposed to show.
There were also delays in communications between Mastercard and Green Dot, which may have prevented retailers from completing card loads or activations on customers' prepaid cards, according to Mastercard.
"Despite careful planning and extensive testing, advance systems and experienced personnel, issues do arise in processor conversions due to factors including the complexity of systems and functions and the large quantity of data transferred and uploaded," wrote Michael Manchisi, president of Mastercard Payment Transaction Services.
Manchisi added that Mastercard has since made adjustments to further expand its processing capacity. And he stated that the firm is still determining the root causes of some problems.
For its part, Walmart stated that in the aftermath of the May service interruption, the retail behemoth has worked with Green Dot to create a system that provides real-time updates on Green Dot systems that are used to administer the Walmart MoneyCard program.
And in its own letter, Green Dot stated that only 1.2% of its active card base of 4.75 million cardholders was affected by the service disruption. Still, nearly 60,000 customer accounts were affected, the vast majority of which carried the Walmart brand, according to Green Dot.
Green Dot stated that 12,599 account holders were unable to activate a new card or a replacement card. The firm also identified 41,385 accounts where the customer had a transaction declined because the account showed an erroneously low balance.
To arrive at a total of 58,561 accounts, Green Dot included more than 4,500 consumer complaints that it received directly or from other organizations such as the Federal Reserve Board.
"Initially, the service disruption was believed to be limited to the inability of customers to obtain account balance and statement data, but otherwise did not impact the usability of the account," Green Dot wrote in its Aug. 5 letter to the senators. "However, as that problem was repaired, it became known that other types of service interruptions were also affecting certain customer accounts."
Green Dot, Mastercard and Walmart did not provide comment beyond what they stated in their letters.
Although the letters offer a good deal of new information, they do not fully resolve questions about when the processing problems were fixed.
Green Dot stated that it believes all systems were fully operational by May 19, though the reporting and resolution of customer problems continued in subsequent days. Mastercard said that all issues were resolved by the morning of May 21.
Yet information provided by the Fed, which regulates Provo, Utah-based Green Dot Bank, shows that consumers continued to file complaints for several more days.
From May 22-28 the Fed received more than 90 complaints from Green Dot customers who were either requesting access to their funds or complaining that they were unable to do so, according to Fed records.
Another issue arising from the processing miscues involves compensation for affected consumers.
Green Dot said in its Aug. 5 letter that it has provided the affected customers $3.35 million in credits and waived fees, mostly in the form of a $50 credit to each account. The company also reported that a separate group of 5,895 customers had balances that were a total of $1.15 million higher than they should been, and those customers were allowed to keep that extra money.
Green Dot's chief financial officer stated in a recent conference call that the firm has been reimbursed by Mastercard for all material related costs it incurred during the second quarter.
Still, Green Dot faces the possibility of losses related to the May 2016 incident. The company said in its letter that it faces two lawsuits related to the problems.
In addition, the prepaid card issuer has pushed back its timetable for completing its processing migration to Mastercard. That process had been scheduled to finish in 2016, but it is now planned for completion during the first half of next year.
For Mastercard, the May 2016 processing woes follow a fiasco last year involving the RushCard prepaid card. Those problems also involved customers who were unable to access their funds, and they happened as RushCard was migrating its payment processing to MasterCard.
In all, more than 400,000 customers were affected, according to RushCard.
Mastercard, in its Aug. 5 letter, downplayed similarities between the two incidents. For example, Mastercard stated that the service disruption involving Green Dot was resolved much more quickly than the RushCard problems were.
"Although both the Green Dot and RushCard circumstances involved a processor conversion and Mastercard serves as the system of record and provides transaction processing to both Green Dot and RushCard, the similarities end there," the letter stated.
Ira Rheingold, executive director of the National Association of Consumer Advocates, said that the recent processing miscues illustrate bigger problems with prepaid cards. He noted that checking account holders enjoy more protections than prepaid card users.
"It does real damage to people, when they're trying to get access to their funds, and they can't use their cards," Rheingold said.
"If your debit-card system isn't working," he added, "at least people have a physical bank that they can go to."