First-class card issuing, now on the Amex network 🙏.

13/🧵Netting Out.For the ambitious builders who are willing to navigate the complexities, there’s a huge prize waiting in government disbursements. If you’re building a product in this space, come talk to us at @Lithic. We know all the gotchas.

12/🧵Cost to Serve - Part 3.Think you can outsource your call center to a low-cost geo? Nope. Strict data residency requirements apply. Comerica lost the Direct Express contract partly because their processor, i2c, was handling cardholder data from Lahore, Pakistan.

11/🧵 Cost to Serve - Part 2.With 68% unbanked users and 30% aged 65+, the user base has limited familiarity with digital, self-service channels. Your call volumes WILL be high. Comerica paid $138M in outside processing/servicing expenses related to Direct Express in 2023.

10/🧵 Cost to Serve - Part 1.Servicing costs for these prepaid card issuers can be brutal. Govt. agencies set extremely high standards on program managers when it comes to cardholder support. Direct Express for example requires 24/7/365 customer support, in multiple languages.

9/🧵 Revenue Streams.Combined, you’re looking at over $1B in revenue pools annually.

8/🧵 Revenue Stream 3 - NIM cont. In Q3 2024, Comerica reported avg. Direct Express deposits of $3.4B, all non-interest bearing. With EFFR at 4.33%, that's $147M+ in yield from the float. Extrapolating, the total NIM opportunity from $190B annual disbursements is ~$650-700M.

7/🧵 Revenue Stream 3 - NIM.These prepaid accounts are non-interest bearing, creating a major ~0 deposit beta asset-gathering opportunity. While paying out zero interest on deposits, these prepaid card issuers are likely earning the EFFR, if not more, on average daily balances.

6/🧵 Revenue Stream 2 - Cardholder Fees.In addition, issuers earned $130M+ in “cardholder fees”. These are charges levied on the account holder for ATM transactions, inactivity/dormancy, paper statement generation, etc.

5/🧵 Revenue Stream 1 - Interchange.In 2023, Issuers earned $340M+ in interchange from these prepaid programs. This, despite govt disbursements cards earning lower interchange (spend at merchants with VPP/MPP rates), averaging 0.85% vs 1.20% for all Reg II-exempt prepaid/debit.

4/🧵 BNY Mellon transition.BNY Mellon ($BK), in partnership with MoCaFi, which BNY is a major shareholder in, won the Direct Express contract for 5 yrs, starting Jan 2025. Galileo ($SOFI) is the processor behind MoCaFi with Senture and Ubiquity providing contact center services.

3/🧵 Zooming in on Direct Express.Direct Express was previously administered by Comerica Bank ($CMA), with i2c and Conduent ($CNDT) as the primary processors/servicers. Comerica won successive 5-year bids and ran it from 2008-2024.

2/🧵 Use cases.These card programs help disburse funds for Social Security, Veterans Affairs, TANF, child support, disaster relief, SNAP, etc. The Direct Express card program, for example, serves 3.4 million Americans who receive $3.3B monthly on Direct Express prepaid cards.

1/🧵 .$190B was disbursed by government agencies through prepaid cards in 2023 ($42B+ Federal, $147B+ State/Local). This was across 1,300+ network-branded, general-use prepaid card programs.

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