In South Africa, MasterCard has unveiled one of the world's first debit card-based payment systems for welfare benefits and social security. The new project, released for the South African Social Security Agency (SASSA), will disburse government pension, disability, and public assistance payments onto a biometric debit card. Unlike normal debit cards, the South African cards require users to have their fingerprints and voices digitally analyzed by computers. In effect, they're the next generation of the EBT cards commonly used for food stamps in the United States.
The South African government hopes the new cards will cut down on fraud, and MasterCard hopes the program will introduce card services to millions of poor people with no bank accounts. But the question is how the new cards will play out in real life.
Suitcase-size enrollment and disbursement centers have been deployed by MasterCard's local partners, Grindrod Bank and Net1, to SASSA offices throughout South Africa. In order to have funds disbursed onto their card, aid recipients have to verify their fingerprints and voices with a biometric reader. Watch the video below to find out more.
MasterCard is involved in a similar partnership with the United Nations World Food Program and has been exploring similar programs in Nigeria, the United Arab Emirates, and India. Because South Africa is building their electronic payments disbursement infrastructure from scratch, MasterCard and their local partners were able to quickly implement a biometrics-based system.
The fees to put a similar system into effect in a populous American state such as California or New Jersey for public assistance disbursement would be astronomical. However, the Treasury Department has been heavily pushing social security and SSI payments via prepaid debit cards for the unbanked. Of course, these cards come with high ATM cash withdrawal fees.
South Africa is currently in the process of transitioning over to the new card-based disbursement system. According to MasterCard's Elise Mazzetti, more than 3 million South Africans have already received biometric cards since the program launched in March 2012. By March 2013, more than 10 million South Africans—nearly one-fifth of the country's population—will be using the biometrics cards to receive their welfare and social security payments.
The South African government has been especially eager to introduce biometric welfare cards. Endemic welfare fraud is commonplace in South Africa, with approximately one-quarter of all social security payments being fraudulently disbursed. Unlike the public assistance disbursement systems of the United States and Canada, South Africa requires recipients to visit banks and present only an identification booklet and a PIN—both of which are easily spoofed. Cases of small-time criminals collecting benefits for dead relatives or selling their PINs are commonplace.
"The biometric information positively identifies the beneficiaries of state welfare grants and provides greater convenience, safety, and security for recipients," says Net1's Serge Belamant. "Furthermore, it reduces the impact of fraud on government as the UEPS Biometrics solution will significantly reduce unlawful collection of grants, making sure that the funds made available by the South African government to assist those in need, are received by the people who need them the most."
MasterCard literature indicates that biometric debit cards will save the South African government money. Between $3.25 and $4.38 was lost by SASSA on each grant to pay beneficiaries; under the new biometric scheme the cost to SASSA will be capped at $2.07.
While the new biometric cards will sharply reduce fraud and save the South African government money, they're likely to hit welfare and social security recipients in the wallet. South African aid recipients will be charged an $.90 fee for cash withdrawals at ATMs after a free initial withdrawal. For South Africans depending on cash to purchase groceries, pay for rent, and for other goods and services, this can quickly become an expensive proposition or lead to the withdrawal of large sums of money—which comes with its own set of issues.
In the United States, MasterCard and Comerica Bank have the tender for the Treasury Department's non-biometric DirectExpress Social Security debit cards. By March 2013, Federal regulations will make electronic payments mandatory for all Social Security and VA recipients; federal benefit recipients will be required to sign up for DirectExpress if they do not have a bank account, credit union account or third-party general purpose reloadable card.
Update: According to a followup email from MasterCard, card users will be charged a $.90 fee for withdrawal after a free withdrawal. MasterCard declined comment on fee schedules for the initial publishing of this article.
Correction: A prior version of this article stated that American Social Security and VA recipients without bank or credit accounts will be required to sign up for DirectExpress cards in 2013. In fact, recipients have the options of receiving funds on other third-party reloadable cards not promoted by the United States Social Security Administration.