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Prepaid Cards for Prisoners

Adam Rust's picture

Posted September 22, 2010

The prepaid card is about to tackle one of the more challenging issues for prison re-entry. Continental Prison Systems (CPSZ:PK) , a $4.6 million start up in California, offers a banking system for inmates. They call it the E-Z Card & Kiosk. The company installs kiosks inside state prisons and then issue debit cards to inmates. They refer to the system as the "cashless jail."

Prisons and their prisoners face some unique challenges. It costs a lot of money for prisons to write checks. According to CPSZ, it can cost as much as $17 per check. Hard to believe, but then again, who's counting? It is easier to see why a debit card would help prisoners. Even though prisoners can live

without cash, many do earn wages while in prison. There are generally two tiers of employment. Some prisoners work for the state. In those cases, they might earn one to three dollars per day. Prisoners in work release are generally able to earn wages at the same level as any other worker. There is a caveat, though. Many prisons choose to charge rent and board for people that can get a work-release job. They are also likely to have to pay for private transport. At one prison in North Carolina, prisoners pay about $15 each way every day.

Working prisoners often want to send money to their families. The prison writes checks for them at other times - when they are released, or when they are transferring money from a prisoner's account to a child support recipient.

The kiosk system captures all of those transactions.

In the hours and days after release from prison, many inmates face a lot of challenges. Prisons release inmates at all hours of the day. Upon walking outside the gates, a prisoner is a vulnerable target. People expect that they will have cash.

The pace of innovation in the prepaid card industry has been rapid in the past few years. In 2010, two national prepaid card firms - Green Dot and NetSpend - have announced plans to offer their stock on public exchanges.  Green Dot has already commenced with that offering. Their stock priced above expectations, at about $35, and it is now selling for more than $50 per share. The date for NetSpend's IPO has not been given.

No branch bank on premises.

The new card from Continental Prison Systems capitalizes on three trends:

  • more people in prison
  • tight states and municipal budgets
  • higher costs for basic banking services

CP's model will appeal to many governments that are short on cash. CP installs the kiosk and adminsters the transfers at no cost to the prison. The equipment is not cheap.  By one estimate, each system costs $25,000. A typical retail ATM, by contrast, costs about $10,000.

They make their dollars by imposing all kinds of fees on the prisoners and their families that use the card. Green Dot's commitment is to minimize fees for customers, and to make it possible for consumers to avoid fees altogether.

As of August 21st, CPSZ had contracts with 21 different prisons. New York City put the kiosks in at Riker's Island in 2009. The New York Post noted that New York City inmates deposited $23 million into prison accounts upon admission to one of the city's prisons. In February, CPSZ agreed to put its kiosks in the Clark County (NV) Correctional Center, the fifteenth largest prison in the country. In April 2010, the company announced that it had reached an agreement with the Broward County, Florida prison.