Posted 18/04/2019 by Don Arthur
The Government plans to move nearly 22,500 income management participants from the BasicsCard to the newer cashless debit card. Around 87 per cent of BasicsCard users are in the Northern Territory. These income management participants will join around 11,700 cashless debit card users who reside in the cashless debit trial sites of Ceduna, East Kimberley, the Goldfields, and Bundaberg and Hervey Bay. The plan is to change from the BasicsCard to the cashless debit card without changing other aspects of income management such as the proportion of their payment participants receive as cash.
Both the BasicsCard and the cashless debit card schemes are designed to allow the Government to make income support payments while limiting recipients’ access to harmful goods such as alcohol, gambling and illicit drugs. The BasicsCard scheme excludes a broader range of goods than the cashless debit card scheme. For example, the BasicsCard excludes tobacco and pornography while the cashless debit card does not. This difference may have more to do with limitations associated with the card technology than with Government policy preferences.
While the BasicsCard and cashless debit card schemes have similar objectives, the two schemes work in different ways. The major advantages of the cashless debit card are that it is cheaper to administer and allows income support recipients to use the card at a much wider range of stores and online businesses. However, this wider access may also mean that income management participants will be able to spend their income support payments on goods such as tobacco and pornography that are blocked under the BasicsCard system but not under the cashless debit card system.
This post outlines some of the differences in the technology behind the two cards, explains the current limitations of the cashless debit card system and looks at how the Government is attempting to overcome these limitations. Since there is little publically available data on the cost of the two schemes, this post does not attempt to estimate the cost per person of each scheme.
How the BasicsCard and cashless debit card schemes block transactions
People often talk about the BasicsCard and the cashless debit card as if the card itself blocked the purchase of excluded goods such as alcohol. This conjures up images of cardholders filling a supermarket basket with mix of groceries and alcohol and having the transaction automatically declined at the checkout unless they remove the restricted items. However, this is not how the card schemes work. It is usually up to checkout operators to spot the card and restricted items and then refuse to process the transaction.
Both card schemes can automatically block particular retailers and other merchants but currently neither can block the purchase of particular items. While it is relatively simple to make sure a card does not work in places like bottle shops and casinos it is far more difficult to automatically block purchases of things like alcohol at a shop, club or restaurant that sells a mix of restricted and unrestricted goods.
Under the BasicsCard scheme, merchants are automatically excluded unless they have been approved by the Department of Human Services (DHS). As part of the approval process merchants must enter into an agreement with DHS. Merchants agree not to let customers buy excluded goods and services using the BasicsCard.
With the BasicsCard scheme DHS can, in theory, choose to block purchases on almost any type of good or service. It can only do this because merchants agree to manually refuse to process transactions involving excluded goods.
The cashless debit card scheme is different. Merchants are automatically included unless they have been blocked by the card issuer Indue. This means that most participating merchants have no agreement with Indue that would prevent them from processing transactions involving restricted goods.
Rather than relying on agreements with merchants, the cashless debit card scheme relies on merchant category codes (MCCs). An MCC is four-digit number that describes a merchant’s primary business. It can be used to automatically identify and block categories of merchants such as bottle shops and casinos where restricted goods and services are sold. However, restricted goods like alcohol and gambling products are not just sold by merchants whose primary business is alcohol or gambling.
The mixed merchant problem
One of the major problems with the MCC blocking system is dealing with merchants that sell a mix of restricted and unrestricted goods—for example, hotel bistros and restaurants that sell alcohol as well as meals. In the MCC blocking system these merchants are blocked by default.
Currently, Indue and the government deal with this problem by allowing these merchants to accept the card if they enter into an agreement not to allow purchases of restricted goods. The merchant must agree to make sure that their ‘staff understand how to identify a Cashless Debit Card and know how to process a CDC Transaction in compliance’ with the terms and conditions.
Indue normally requires that these ‘mixed merchants’ have a separate point of sale (POS) terminal that they use only for the sale of unrestricted goods. Indue will unblock this terminal while leaving the merchant’s other terminals blocked.
Gift cards are a potential weakness for the cashless debit card scheme because many supermarkets sell gift cards that can be redeemed at merchants that sell alcohol. This issue was raised in a 2017 report by the Minderoo Foundation. It is not clear how the government has been dealing with this problem.
A proposed solution—automated product-level blocking software
From the government’s perspective, an ideal system would automatically block purchases at the product level rather than at the merchant level without the need for individual agreements with merchants. However, while data on merchant category passes from the merchant’s POS to the card issuer (Indue) with each transaction, product-level data does not. The issuer cannot automatically decline transactions involving restricted goods because it does not have any data on what goods have been purchased. This situation is unlikely to change in the near future.
The Department of Social Service’s proposed solution is to provide mixed merchants with software that allows merchants to automatically block purchases of restricted goods using their POS systems. DSS put out a request for tender for the development of such software in 2017 and on 25 March 2019 the Minister Paul Fletcher announced that the cashless debit card would ‘be enhanced to feature improved technology to automatically decline transactions, online or in store, if the purchase includes restricted items such as alcohol or gambling products.’
What next?
The BasicsCard scheme has a number of significant limitations. It is expensive for DHS to administer, it places a burden on merchants, and it significantly limits the number of places cardholders can pay for goods and services. However, the cashless debit card scheme also has limitations. Automatic MCC blocking on its own cannot meet the government’s policy objective. This has meant that the government has been forced to resort to some of the same approaches that make the BasicsCard difficult to administer—agreements with individual merchants and manual blocking. New product-level blocking software may reduce the burden on merchants but it’s too early to tell whether it will be effective in practice.
Moving to the cashless debit card may also make it difficult to continue blocking tobacco and pornography. Tobacco is available at merchants such as newsagents, convenience stores and petrol stations. It may not be practical to have individual agreements with such a large number of merchants. There are also potential issues with online payments. The Minderoo Foundation favours allowing greater access to online purchases and payments but acknowledges there are problems preventing access to restricted goods and services (p. 17).
So far the cashless debit card has only been trialled in a small number of communities. If it runs into serious problems when rolled out on a larger scale, it is unclear what the Government’s fall-back position would be.