What if there’s a way to bring prepaid products to millions of new consumers, with the help of the federal government?

I think there is. By leveraging billions of dollars in annual tax refunds, there’s the potential to deliver a prepaid product that benefits consumers, industry and the government alike. Called the Assets and Transaction Account, or ATA for short, it’s envisioned as a network branded prepaid account that would be delivered through the tax filing process and loaded with tax refunds, to start.

Each year the U.S. Treasury Department issues millions of refund checks worth billions of dollars to tax filers. IRS data show that almost half of all tax filers who are due a refund receive them via a paper check. That’s at least 60 million paper checks that are processed, printed and mailed. And that’s billions of refund dollars that could be deposited into financial institutions in a way that instantly “banks” consumers, while saving the government millions of dollars each year.

What Would the ATA Look Like?

The ATA would be delivered to tax filers who didn’t direct deposit their refund into an existing account or elect to receive a paper check. Financial institutions would issue the products, which would be loaded with tax refunds, direct deposits of wages and salary and, ideally, other sources of money. To facilitate savings, 5 percent of the tax filer’s refund would be deposited automatically into a savings purse. At a minimum, the ATA would be FDIC-insured, network branded and provide ATM access, POS capabilities, and Web- and phone-based bill payment options.

How Big Is the Potential Market?

IRS data show that of the 60 million refunds that were not direct deposited, 39 million were paid to households with adjusted gross incomes of $60,000 or less. In fact, almost 28 million of them had adjusted gross incomes of $30,000 or less. These are the households that are most likely to use costly financial services, like check cashers, to convert their refunds into cash. Because many are liquidity-strapped, when they do use checking accounts, they are more likely to incur bounced check fees, often as much as $39 dollars per overdraft. They also are less likely to have adequate savings to cover emergency expenses like car repairs or unexpected medical bills -- leading them to payday lenders and other expensive sources of credit.

These households, however, do receive on average about $1,700 in federal tax refunds. And when looked at in the aggregate, as much as $70 billion annually is refunded to households with AGIs of $60,000 or less, via paper check. The potential of those refunds as deposits along with interchange revenue create a powerful case for financial institutions to make a prepaid product available at a reasonable cost to consumers.

Is There a Mechanism to Address BSA Issues?

Yes. The personal data presented on the tax returns is the basic information required in a customer identification program. The government could use the information to help in the identity verification process.

Is the Government Ready for This?

Actually, the Treasury Department already is headed down this path. After a one-year pilot, Treasury is rolling out the Direct Express initiative nationwide. Direct Express is a MasterCard-branded debit card account into which Social Security payments are deposited. In addition to the cost savings, Treasury developed Direct Express to provide un- and underbanked Social Security recipients with a safer and more convenient option to paper checks. Although the product is not loadable with funding sources other than benefits, it is a positive signal that Treasury is interested in moving in this direction.

What Are the Next Steps?

Given the convergence of opportunities for the government, consumer and industry, the prepaid industry has a powerful platform to engage and encourage movement in this direction. Over the next 10 months, I’ll be leading an effort to craft a federal policy proposal to deliver an ATA at tax time. Its success depends on input and guidance from the industry.

I welcome your participation in the discussion.