Payroll professionals are keenly aware of the inherent benefits of deploying an electronic pay program within their organization. Upon doing so, their employer can save money and resources associated with payroll processing and distribution costs while employees benefit with the piece of mind of knowing that their wages are accurately and consistently deposited into their personal bank account. In fact, NACHA, the Electronic Payments Association estimates that companies save up to $0.60 per payment by using direct deposit instead of paper paychecks.* This is why employers over the past 25 years have promoted direct deposit to their workforce, achieving a 65% direct deposit participation rate nationwide.
However, if you work for an employer whose workforce contains a high percentage of individuals without bank accounts, it is difficult to achieve the desired level of participation in direct deposit programs. Employers with higher percentages of employees without bank accounts tend to be those in the agricultural, food processing, hospitality, manufacturing, retail, restaurant, and transportation sectors of our economy. These workers are frequently called the unbanked by employers and the financial services community and represent about 10 million households in the United States.
In response to the employer community's desire to find a practical method to pay unbanked workers electronically, Visa along with others have developed payroll debit card (paycard) products and services as a cost effective way for payroll professionals to electronically pay their population of unbanked workers.
According to the Pelorus Group, an independent research firm, the number of paycards in circulation in 2006 was 7 million. This is more than a three-fold increase from the 2.2 million cards reportedly in circulation in 2004, and the number is expected to increase to 17.5 million in 2010.
Paycards operate in a manner similar to traditional debit cards that are linked to a checking and/or savings account held by individual consumers at any given financial institution. The primary difference between these two types of cards is that an employer establishes a banking relationship with one specific financial institution as opposed to the unbanked employees doing so on their own. Once the employer creates a paycard account for the purpose of paying wages to their unbanked workers, the employer issues paycards to these employees and begins to electronically deposit, or load, wages into the paycard account every pay period.
Paycard accounts that are established by employers for their unbanked workforce can be set up so that each employee has a separate account. Or, employers can establish a single aggregate account for all their unbanked workers who choose to use a paycard. The use of an aggregate account means that the total wages paid out to all employees participating in the paycard program are co-mingled in one account each pay period. But the financial institution where the aggregate account is held tracks all of the employee-level debits and credits associated with each individual worker's paycard.
Workers who participate in their employer's payroll card program can then access their wages via an ATM, an over-the-counter transaction at a bank branch or by using the cash back feature available at many point-of-sale terminals in stores. Cardholders can also use their card to purchase goods and services using the PIN they selected. And, if their employer issues branded payroll cards (cards issued with a Visa or similar logo), employees can use their payroll cards to make signature-based (off-line) debit card purchases that are typically settled against their payroll card account within three days.
Most programs provide employees with at least one free means of accessing their full wages each pay period without fees. This practice enables employers to meet their legal obligation to pay workers their wages "without discount," as required by many state wage and hour laws
*Source: Direct Deposit and Direct Payment, www.directdeposit.org and www.directpayment.org.
Source: American Payroll Association/ Visa Paycard Portal 2009
