As Paper Checks Sunset, Fifth Third Scales Up Prepaid

Today marks the official end of paper checks for federal benefit payments. As Social Security and the IRS fully transition to direct deposit and prepaid cards, Fifth Third Bank is already capitalizing on the shift.

Just three weeks ago, Fifth Third took over the Treasury Department’s Direct Express program, which had previously been managed by Comerica and, briefly, by BNY. The program serves approximately 3.4 million Americans, providing them with a prepaid debit card to receive their monthly federal benefits.

Fifth Third CEO Tim Spence described Direct Express as the “equivalent of the second-largest neobank in the U.S. with similar average revenue per customer, but significantly better profitability.” Last year, the program generated Comerica roughly $3.4 billion in deposits. Now, with paper checks eliminated, the program is poised for even greater growth.

“We’ll see solid growth in Direct Express,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research. “Direct deposit probably will be the big winner, but for those with less access to banking products, we should see larger than normal growth in Direct Express.

Javelin had predicted 3% growth for 2024 to 2026, and I anticipate that will grow to the 5% to 7% range into 2026.”

Comerica Loses the Contract

Direct Express had been operated for years by Comerica Bank, but its partnership with the federal government unraveled in April 2024, when the Fiscal Service announced it would not renew Comerica’s contract. The Consumer Financial Protection Bureau (CFPB) later filed suit against Comerica, alleging mismanagement.

Among other claims, the CFPB said Comerica required users to contact merchants directly to cancel pre-authorized payment transfers from their accounts. As a result, thousands of cardholders closed their accounts to stop such payments. Consumers were then required to pay additional fees to obtain replacement debit cards more quickly, in order to regain access to their government benefits.

BNY Falters as Well

The initial replacement for Comerica, BNY, did not fare much better.

Announced as Comerica’s successor last November, BNY lost the contract before it ever took over the program. “Due to readiness challenges involving one of the providers, Fiscal Service made the decision to discontinue the agreement,” a BNY spokesperson said earlier this month.

Fifth Third will begin enrolling consumers in Direct Express at the start of 2026, while Comerica will continue to manage the program until users receive their new cards from Fifth Third. Mastercard will remain the program’s payment network, as it has been since Direct Express’ launch in 2008.