The economic fallout from the coronavirus pandemic continues, and even with the May jobs report suggesting that a turnaround on the employment front is under way, tens of millions of Americans are still struggling to make ends meet. The federal government has sent out a huge number of stimulus checks to get much-needed money into the hands of those in need, and some lawmakers are looking to take additional measures to provide further assistance.
The majority of stimulus payments that the federal government has made came through direct deposit, with a fee-free transfer of money into people's bank accounts. Yet several million Americans have received stimulus payments in the form of a prepaid debit card. That's caused some confusion among those who expected checks, but it's also giving some incremental business to three publicly traded companies: Fiserv (NASDAQ:FISV), Meta Financial (NASDAQ:CASH), and Visa (NYSE:V).
How stimulus debit cards work
Roughly 4 million people had stimulus payments sent to them in the form of debit cards. The federal government chose to use debit cards rather than checks for certain taxpayers who'd had their tax returns processed at specific IRS service centers.
The debit cards are issued under the Visa payment network, with Meta Financial subsidiary MetaBank acting as the issuing financial institution. MetaBank acts as the financial agent for the U.S. Treasury Department as part of its Bureau of the Fiscal Service, which is likely why it got the nod to move forward with stimulus debit cards. Fiserv is the parent company of Money Network Cardholder Services, which is responsible for providing customer service to those receiving the cards.
Are stimulus debit cards a big deal for these companies?
With 4 million people getting $1,200 per adult and $500 per child, there's not a huge amount of money represented by these stimulus debit cards. $4.8 billion is just a tiny fraction of a percent of the annual payment volume that Visa handles on its network. Similarly, Fiserv has extensive relationships with card issuers to help with a wide variety of customer service needs, so the incremental benefit of stimulus debit cards isn't likely to be all that large.
The story is potentially different for Meta Financial. With a market capitalization of just $730 million, Meta is tiny compared to Fiserv and Visa. Moreover, as issuer, Meta stands to receive fee revenue from the card offering.
Admittedly, the fees for the stimulus debit cards are fairly reasonable. The cards allow one free out-of-network ATM withdrawal and one free cash withdrawal at a bank teller window. There are no opening or monthly maintenance fees, and debit transactions are allowed at no cost. In-network ATM withdrawals are always available at no cost, and even once the card starts charging fees, the $2 cost for out-of-network ATMs, $3 for international withdrawals, and $5 for bank teller withdrawals isn't out of line for the industry.
Yet debit card companies see working for the federal government as an opportunity to introduce customers to their products. Once someone gets used to using a prepaid debit card to handle their finances, they're more likely to turn to similar products that these private-sector companies offer in other parts of their business -- products that can produce more revenue.
Don't let stimulus debit cards confuse you
Unfortunately, many people were unprepared to receive stimulus debit cards. As they came in plain envelopes to deter mail fraud, some recipients thought they were junk mail or scams and threw them away. The IRS has directed those who did so to contact Fiserv's Money Network customer service for a replacement. The first replaced card comes with a waiver of the usual $7.50 reissue fee.
The stimulus payment process has been painful for many Americans, and it could continue to have an impact on financial planning for the rest of 2020 and beyond. For investors, though, it's interesting to see how Fiserv, Meta Financial, and Visa are ultimately benefiting from stimulus prepaid debit cards.