For the prepaid industry, 2025 has been focused on federal legislation, particularly the impact of the omnibus so-called “One Big Beautiful Bill” that was signed into law in July. On the state side, regulators have been mostly quiet, aside from a gift card cash-out proposal still working its way through the California legislature.
In his new 2025 Prepaid Regulatory Report: Federal Changes Dominate the Conversation, Jordan Hirschfield, Director of Prepaid for Javelin Strategy & Research, looks at how these changes will affect prepaid players over the next few years. While the federal government has narrowed some opportunities, particularly in nutritional assistance programs, the Trump administration is also opening opportunities for prepaid programs in other areas.
Cutbacks in Government Programs
The primary regulatory concern for the prepaid industry in 2025 was the omnibus legislation commonly known as “One Big Beautiful Bill,” which called for severe cutbacks in areas such as the Supplemental Nutrition Assistance Program, or SNAP. That means fewer transactions, less load, and fewer people utilizing the prepaid cards from these programs. This will have a significant impact on the companies that help produce those cards and process the attendant payments.
As with many government programs, political and budgeting decisions could turn this around in a heartbeat as priorities and administrations change. Hirschfield said there may not be a lasting long-term effect, but over the next two to five years, the number of transactions that are approved for nutritional assistance is likely to drop significantly.
“Those in the industry that support government programs are going to feel a pinch from how much they process and the transactional fees they get from that,” Hirschfield said. ”Government programs already are lower margin, by and large, because it’s the government. These aren’t places where you can do profiteering, nor should you. But it is an area where you want to make money by supporting a government contract and doing these things that are important to communities.”
One positive result for the prepaid industry is the administration’s determination to phase out paper checks. The Social Security Administration has announced it will sunset paper checks as of Sept. 30, 2025, opening up an opportunity for prepaid providers. For example, the Direct Express platform is a BNY-sponsored Mastercard that people who are unbanked or underbanked can use to get their Social Security payments on what is essentially a prepaid debit card.
“We will probably see those kinds of offerings increase at a faster rate,” Hirschfield said. “You’ll see other non-prepaid mechanisms increase as well, with direct deposit, ACH transfers, and things like that.”
Cash-out Levels Rising?
At the state level, the most significant prepaid development this year was California’s proposal to raise the cash-out minimum for gift cards from $9.99 to $25. If the law passes—and Hirschfield said it’s been getting some traction—it would require stores to refund leftover amounts on prepaid cards of up to $25.
According to Hirschfield, the proponents of the law mistakenly assume that companies are profiting from unused funds when these actually represent liabilities on their books. They generally have to remain on the books for five years before the issuer can recognize the revenue. Hirschfield said that only 1% to 3% of prepaid cards have a balance on them for a decent length of time,
The proponents of the law used statistics from Starbucks, which has a significant volume of card breakage five years after they were issued. But Starbucks also sells an enormous number of gift cards per year. It may be pocketing $100 million or so a year on leftover gift card money, but it’s selling $16 billion a year.
Putting the Burden on Retailers
What’s more important are the practical implications for retailers.
“Cash is not something that a lot of stores manage anymore,” Hirschfield said. “The excess cash required for people to cash out $25 at a time is a really large amount that these retail stores might need to have on premises. It creates a security risk. You don’t want your retail associates handling that much cash.”
The law would also encourage non-use of these cards, which does not benefit anyone involved. The person who bought a gift card didn’t intend for the recipient to merely cash it in for $25. The recipient is missing out on aspects like loyalty benefits, which could very well be more valuable than just taking $25 in cash.
A law passed in Maryland last year mandating more protective packaging for gift cards, one that quickly became a sort of mandate for prepaid card issuers. Manufacturers don’t want to establish one standard for their cards sold in one state and another for the rest of the nation.
“The industry responded and said yes, we’ll make a better, more secure package,” Hirschfield said. “It just becomes universally accepted.”
By contrast, even if the California proposal becomes law, it is unlikely to affect other states because the onus would be less on the card issuers than on retailers within the state.
“The policies and procedures at the store level will needto be much different,” Hirschfield said. “If you’re a national retailer, a Target, Home Depot, or Walgreens, you have to create a whole separate set of policies, procedures, and technology in your point-of-sale system just for California. It’s a really onerous battle at that point, and really the benefit is so small.”
Limited to California
Hirschfield thinks it’s doubtful there will be much of a copycat effect, either. While 10 other states have cash-out provisions for the unused part of a gift card, they all limit the refunded amount to $10. Some state initiatives affecting the prepaid industry might turn out to be a bellwether for the entire country, but this is an instance where it’s not likely to go further, even if California enacts the law.
“A few states that definitely lean on the protecting-the-consumer end of the spectrum that might try and do something similar,” he said. “But $25 is a really extreme amount. People within the gift card industry are not against cash-out provisions. They’re against the sheer total at $25.”
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