[Dave Birch] A discussion earlier today touched on the British Government’s impending shift to “universal credit” in a reorganisation of the way that welfare benefits are paid. I saw in The Telegraph that the government was floating the suggestion that the payment systems be used to enforce moral judgements over the less well-off.

Iain Duncan Smith has asked his officials to see if so-called ‘problem’ families should receive their welfare payments on smart cards, rather than in cash.

[From 120,000 troubled families could be legally banned from spending benefits on alochol and tobacco – Telegraph]

The Daily Mail appears to have some more specific information on the design specifications for these new cards, which certainly seem to be using the very latest technology.

Plans being drawn up by Work and Pensions Secretary Iain Duncan Smith will see the 120,000 problem families targeted with Oyster-style cards which can only be used in certain shops.

[From Iain Duncan Smith: ‘No booze’ smart cards for benefit claimants who spend their handouts on drugs and alcohol | Mail Online]

I’m not entirely sure what they mean by “Oyster-style” (Blue? Rectangular? Contactless? Not issued by a bank? A closed loop solution?) but I’m guessing that what they actually mean is pre-paid. Now, as far as I am concerned, this is actually a good way to deal with the transition to universal credit. Forcing banks to provide “basic bank accounts” that welfare recipients don’t want to use is a dead end. These accounts are a backward-looking, money-losing, non-solution to the problem of the underbanked. Allowing non-banks to provide pre-paid solutions (perhaps rather like the O2 Wallet, with smartphone management capabilities and a companion EMV card) is surely a better way forward.

Anyway, as far as I know, welfare recipients will be getting their cash on smart cards anyway. It may have slipped Mr. Smith’s mind, but starting next year all benefit recipients, let alone “problem families”, will be getting their welfare payments on smart cards since the new Universal Credit system means the end of welfare cheques, benefit books, Post Office cards and everything else. All benefits will be paid into bank accounts and to get them out you will need a debit card. In the UK, these have been smart for some time, as I’m sure Mr. Smith’s chauffeur could have told him. But perhaps it is the journalists who do not realise this? Perhaps what Mr. Smith has actually asked his officials to look into is selective Merchant Category Code (MCC) restrictions on pre-paid cards and debit cards issued with basic bank accounts?

I will happily stave off the demands on the public purse by telling Mr. Smith’s official’s management consultants that this is a waste of time. All it means is that benefit recipients will have to trade (inefficiently and at a discount) to get the booze, fags and weed. Given the entrepreneurial nature of the criminal underclass, a likely outcome would be the invention of an intermediate currency for the black economy (e.g., detergent bottles). Yet Mr. Smith appears to know this already, which makes his floating of the idea of payment system as policeman even more puzzling.

Mr Duncan Smith said he was against using a US-style food stamps system because they are often traded as a form of currency.

[From 120,000 troubled families could be legally banned from spending benefits on alochol and tobacco – Telegraph]

It’s not clear to me why he thinks that removing the physical medium of exchange would make any difference to the marketplace dynamics. Especially as the US experience has already proved this to be the case.

Complying with a law signed by President Obama in February may cost taxpayers more that it saves. That’s one conclusion of a white paper issued today by the Electronic Funds Transfer Association, which represents ATM networks and owners and processors, as well as financial institutions and state welfare agencies.

[From Preventing Welfare Clients from Using Their Benefits at “Vice” Locations May Be Costly and Ineffective, Announces Electronic Funds Transfer Association – pymnts.com]

if you ban welfare recipients from accessing ATMs at casinos, it just means that they go to the ATM at the gas station over the road from the casino and pay twice as much to get their money out. I’m sure there are a great many honest taxpayers who are upset at the idea of welfare recipients using their (i.e., the taxpayers) money to buy booze and would like them not to. But turning Visa and MasterCard into moral chaperones for every rendezvous between card and terminal isn’t a way to do that.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers


  1. Agree. Using MCC would be too broad to target specific spend, and in any case people would find ways around it, even if ATMs were blocked.

    Cash back?
    Asking someone else to buy their “banned items”?
    P2P payments?
    Fudning PayPal account?

    Money is liquid and will tend to find it´s way to the bearer´s target, right or wrong.

    Using cards to control corporate card spending is one thing but I agree it could not (and should not) be used for policing benefit spend.

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