Cargo planes full of cash come with complications.

Such shipments were once a much larger part of how U.S. military personnel got safe and easy access to dollars overseas. But delivering pallets of cash to far-flung bases or storing it on ships creates security concerns, logistical challenges, and risks to local currencies.

Enter the Stored Value Card program, developed and run at the Federal Reserve Bank in Boston.  

For two decades, the SVC program has secured and simplified money for military personnel by putting it on offline smart cards. Servicemen and women use the cards like cash, but unlike cash, money can be recovered if the card is lost or stolen because funds reside on the PIN-protected card itself. The funds are also never exposed to external electronic networks that could be compromised.

Tim Nixon, a 20-year Marine Corp finance officer and veteran who works at the Federal Reserve Bank of Kansas City, was deployed overseas five times, and the ability to securely keep his funds separate on a smart card made family finances much easier to manage. The card also helped him avoid hauling huge amounts of cash in foreign territory.  

“I had to run around with a backpack with $150,000 in it, which makes life kind of edgy,” Nixon said. 

The SVC program now has 700,000 card holders making 64 million transactions worth just under $1 billion annually. But military buy-in was not immediate, and rapid technological changes combined with the military’s evolving demands require an extremely nimble approach. The Boston Fed team, for instance, had to quickly figure out how to shrink the functions of the ATM-sized smart card kiosks into something robust and small enough to fit inside the pocket of military cargo pants.  

“This program is not like anything else in the Bank,” said Gradeigh Mack, who directs daily SVC operations at the Bank.

The program is funded by the U.S. Treasury, which initially hoped to develop an alternative currency similar to the military payment certificates of the Vietnam era, said Victor Carballo, a Bank officer within the SVC program. That was too costly, so Treasury began exploring a smart card system. 

The benefits of cutting down the volume of overseas cash were clear from start, since cash requires so many resources to transport, store, manage, and protect. Picture massive Hercules cargo planes loaded with money being dispatched worldwide, where the cash is trucked to U.S. bases across deserts and mountains. Even in well-protected places like ships, cash takes up valuable space, and the coins weigh enough to decrease fuel efficiency, Mack said. 

U.S. cash can also pose big problems when it leaks into local economies. The dollar is one of the most sought-after currencies on the black market, and it can have destabilizing effects on regional economies if it begins to supplant local currencies, Carballo said. 

The key to the SVC program is the smart chips on the cards, which enable a “closed loop” data transfer system. A typical debit or credit card has a magnetic swipe-strip that sends the cardholder’s financial data to commercial networks to authenticate the card, and that’s a non-starter for the military at austere locations where telecommunications is limited to mission-essential uses. The smart chips are self-contained, with all the bank and personal info needed to complete a transaction. That info moves between the PIN-protected card and a kiosk at a base, ship or outpost, then it’s batched at end of the day and transferred via private networks to the Fed. These transactions are processed via Automated Clearing House (or ACH), and cardholders’ bank accounts are either debited or credited, and participating merchants are credited.

The SVC pilot program began in 1997, and the Boston Fed took it over in 1999 from a First District-based institution in Connecticut. The program, which will soon be moving to the Federal Reserve Bank of Kansas City, has three main cards: 

• EZpay, which comes with a set amount of preloaded funds, is used by recruits in all military branches during basic training.
• EagleCash is a reloadable card used on foreign deployments by personnel from the Army, Marines, Navy, and Air Force.
• Navy Cash is a reloadable card used on Naval ships with a credit card function that can be used in a civilian/commercial environment when sailors are off the ship.

The program rapidly expanded at the start of the Iraq War in 2003. Carballo remembers Bank personnel filling more than 20, 12 X 12-foot pallets headed for Iraq and Kuwait with the thousands of pieces of equipment needed to run the program. Growth has been steady since, and a one-card solution is in development. Meanwhile, Carballo, Mack and their SVC colleagues have travelled to bases all over the U.S. and globally to help the program operate smoothly.

Carballo said Bank staffers are proud to be part of the SVC program and feel a strong connection to the military, because they work so closely with its men and women. 

“We all just want to support the people in uniform,” he said.