Source: Federal Reserve Board, July 2013
From the summary:
Federal, state, and local government offices commonly use prepaid cards to disburse funds at a lower cost than checks (or paper vouchers or coupons) and to provide an alternative to direct deposit for payment recipients, especially those recipients who do not have bank accounts. Government offices contract with financial institutions to issue prepaid cards, disburse program funds, and provide customer service.
The Board collected 2012 data from issuers and government offices on programs using prepaid cards as one or the only method to disburse funds. Government offices reported on 218 programs (including large, previously unreported Social Security and veterans programs) and issuers reported on 559 programs. Government offices reported disbursing more than $1 trillion, 13 percent of which was disbursed through prepaid cards. Issuers reported collecting more than $504 million in fee revenue during 2012–62 percent from interchange fees and 38 percent from cardholder fees. Issuers of prepaid cards collected an average interchange fee of 1.1 percent of the average purchase transaction value in 2012 for these programs, which is roughly equal to that collected by issuers for all exempt debit purchase transactions. Although the prepaid cards provided under government-administered programs usually offer cardholders one or more free automated teller machine (ATM) cash withdrawals, ATM withdrawal fees constitute more than 60 percent of all cardholder fee revenue that issuers collected in 2012. Customer service and account servicing fees constitute the next largest source of cardholder fee revenue, at 13 percent and 10 percent, respectively.