By Paul J. Gessing
According to the website Nerdwallet, New Mexico has the 7th-highest percentage of “unbanked” households among US states. That means that 11 percent of New Mexico families don’t have access to bank accounts.
That same report estimated that New Mexico households lose between $40 and $104 million annually in fees and expenses due to being unbanked. Even for many New Mexicans who do have bank accounts, the geographical size and sparse nature of our population makes it difficult for many in our State to get to a bank in a timely fashion.
New Mexico can help reduce the costs of being “unbanked” by joining the growing number of state governments across the nation which are beginning to use prepaid cards when they make payments to citizens. Such payments include everything from tax refunds to government benefits and any other payment that government might make to citizens of New Mexico.
Specifically, states can provide a valuable new option for those who receive payments from government for those who do not have bank accounts to receive electronic payments.
Paper checks cost significantly more than electronic payments, incurring postage, printing, check stock, and bank-processing costs, which electronic payments avoid. Prepaid cards also create a significantly better experience for users by giving them greater security, convenience, and control over their finances.
• It costs the federal government $1.03 to issue a check, but only $0.10 to make an electronic payment (according to the U.S. Treasury).
• It costs New York state $0.58 to issue a check, but only $0.007 to make an electronic payment (according to NYS Department of Taxation).
No matter what the savings might be for New Mexico in particular, it is high time to cut out the costs associated with sending old fashioned checks through the mail, especially when so many recipients of those checks may not have easy access to banks.
Prepaid cards can also help drive financial inclusion and empowerment for those without access to bank accounts. By creating a prepaid option for citizens, we equip them with a secure payments account that provides full engagement with the modern economy, including cost savings and convenience.
Prepaid cards will enable a government to make electronic payments to those who do not have a relationship with a bank, thus enabling the standardization of electronic funds transfers as the means of payment. For example:
• Prepaid card programs usually allow at least one option for recipients to receive their funds in cash at no cost, which benefits consumers who otherwise would have had to rely on costly check cashing services.
• Electronic payment offers individuals immediate access to their money, even those who may be away from home and unable to collect a mailed check.
• By forgoing check cashing, payment recipients save time and money, particularly those who live in rural locations.
• Payment recipients face fewer problems related to handling checks and cash, such as theft and fraud.
• Payment recipients who are paid electronically do not have to carry around their wages in cash, which can put them at risk for theft.
The list of states that allow citizens to receive payments in the form of debit cards as opposed to checks is long and growing. Such policies are also a “win-win” for government, which can use tax dollars more efficiently, and citizens who have more flexibility in how they use the cash they receive from the State.
New Mexico can and should carefully consider widening the use of such payment systems, especially considering the large number of citizens for whom cashing a check can be a costly proposition—both in terms of money and time.
Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility