In an effort to help reduce processing costs and increase efficiency, the Social Security Administration, in association with the Treasury Department, requested bids from several banks and ultimately settled on Comerica Bank (NYSE CMA) out of Texas to provide Social Security recipients with a prepaid debit card. While prepaid debit cards have become commonplace in many payroll programs, the goal of this project is two fold: to reduce the nearly 60,000 forged checks that the Social Security Administration had to deal with in 2007, and to assist the millions of unbanked recipients of Social Security payments.

While I give kudos to the Social Security Administration, the challenge I see here is three fold:

A) While Comerica seems like a decent bank, there are many larger banks that have much more experience and support needed to handle the specific needs of social security benefactors which will at first require much more hand-holding support than the traditional banking user for no other reason than many of these people don’t have experience in credit card payments. Personally I think that Comerica is unprepared for the task and the Treasury Department should seek additional banks to load balance the matter. Fact is, even if only 1 Million people end up using these prepaid cards and Comerica goes down, goes out of business, or is hit with a major fraud problem, then those Million people will be without their money. When you consider that many Social Security benefactors live from check to check, the risk of putting all your eggs into one basket here is just too high.

B) Identity theft, while not the “sky is falling” problem many industry people make it out to be, it is a problem. It will be a serious problem when thousands of Social Security benefactors are faced with stolen funds, illegal charges, and outright account takeovers. The fact is that it’s much easier to steal a credit card number and use it than forge a check and get it cashed with any sizable amounts. For example, it would take hundreds of man hours and a fairly large crime syndicate to clear $1,000,000.00 in forged checks from social security benefactors. On the flip side, the same efforts can be applied to the Social Security prepaid debit cards and $100,000,000.00 can not only be cleared but done so in a way that the perpetrators will not be caught. While credit cards have a lot of protection, debit cards are very limited. I imagine there will be safeguards and resources in place but these “fixes” can take days or weeks, and once again when you are on a fixed income that may be a problem.

C) The unbanked are unbanked for a reason. For nearly 20 years, banks all over the world have looked for ways to capture the unbanked and while there has been huge successes in that arena, people have to come to the realization that some people will just never use a bank. Perhaps they are listed on Chexsystems, have had previous issues with banks, or frankly don’t trust banks.

My advice to the Social Security Administration is really simple. Don’t “require” recipients use a debit card. Have multiple banking partners for this project, not just one. Ensure that card users are fully versed on how to use the cards and how to manage the risk of fraud.

My advice to Social Security receivers: wait a year, maybe two, until all the “bugs” are worked out of the system. The Social Security Department will begin mailing out notices in April so most people will receive them by May or June but when you do get yours, decline it. Any new system has issues, problems, and bugs, and when it comes to your income, that’s just too high of a risk. I imagine at one point in the future they will get most of the issues worked out but until then, just wait. If you really need a debit card, take $50.00 down to the local Duane Reade or Walgreens (NYSE WAG) and pick up one, it’s a great way to start learning how to use it and the ones you will get from the Social Security Administration will be virtually the same.