UK public sector adopting new payment methods

Prepaid and electronic payments help to overcome poor cash management practices in government departments

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Central governments worldwide are being encouraged to move away from making payments by check and use electronic alternatives instead. The option of using prepaid cards is particularly popular.

A report in October 2009 by the UK's National Audit Office (NAO), based on a survey of 16 public bodies, identified many poor cash management practices in central government departments, including inaccurate cash flow forecasting and over-reliance on checks.

While the UK Payments Council has now reversed its decision to end the country's central check clearing system by 2018, the decline of check use is unstoppable. Meanwhile, Buying Solutions, the national procurement partner for UK public services, has established a Framework Agreement for using prepaid cards.

The arguments for using prepaid cards in the public sector are compelling. Government departments can use them to pay citizens any state benefits or tax rebates they may be entitled to. They can also be used to pay staff expenses and offer a secure, quick, convenient solution for both payer and payee. Processing costs are far lower than for check-based payment systems.

Prepaid cards also offer a way to increase financial inclusion. People with no bank account can still receive and use a prepaid card, introducing them to modern banking products while reducing their dependence on cash.

The cards can be loaded remotely via the payer's bank, and then used by the payee to withdraw cash or pay directly for purchases at participating outlets. There is no option to exceed the loaded balance or draw on any credit.

Prepaid cards can be used to pay pensions, unemployment benefit, disability allowance, child benefit, scholarships, tax credits and other payments. A single card can be re-loaded and used many times over several years.