With only 5 percent of employers in the United States utilizing payroll-card programs for their employees, the market potential for such cards is huge, said Cherie Fuzzell, President and Chief Executive Officer of prepaid processor and program manager FirstView LLC, in a talk at the Electronic Transactions Association's 2009 Annual Meeting & Expo.
According to Fuzzell, payroll cards are an obvious "win-win" for the employer, the employee and the industry players that implement and manage the accounts.
Programs are "generally" free to employers, other than "minimal" implementation fees and card issuance costs, Fuzzell said. And loading wages on cards instead of cutting checks saves employers roughly $150 per employee per year, she added.
The target market for payroll cards is unbanked employees - workers from a pool of approximately 80 to 106 million U.S. consumers who lack access to traditional checking and savings accounts. Historically, unbanked employees have relied on check cashing businesses to cash their payroll checks; workers pay anywhere from 3 percent to 15 percent of the face value checks for the service.
Fuzzell estimates cost savings for each employee who shifts from checks to payroll cards at $1,000 a year. In addition, employees eliminate the hazards associated with leaving check cashers carrying large sums of money. Another benefit is that the cards - open-loop and network-branded - can be used to access money at ATMs and make purchases online, over the phone and at the POS.
Fuzzell illuminated two ways ISOs operating as payroll card program managers can partner with banks.
The first approach is to offer payroll cards to employers though banks' commercial lending, business banking or treasury management departments. Bank officers market the payroll card value proposition to employers and refer interested parties to ISOs. Banks share in the revenue from each card issued from an upfront or monthly-based recurring revenue model - or both.
Banks commonly program prepaid card bank identification numbers (BINs) into banks' surcharge-free ATMs, Fuzzell said. This practice drives ATM interchange revenue from the "use of bank ATMs by prepaid cardholders employed at the bank's corporate customers," she added.The second strategy is through the turndown model. When banks decline to open accounts for customers based on bad credit histories or low scores on eFunds Inc.'s ChexSystems check verification and credit reporting service, they can steer declined customers to ISOs' payroll card products.
"The degree of integration varies broadly - from merely handing the customer a flyer describing the product to actually enrolling the customer in the product, providing them with an 'instant issue' card and crediting the initial deposit," Fuzzell said. "A revenue share is also available to banks for customers generated through the turndown model."
Fuzzell noted that ISOs generally identify corporate opportunities directly. But ISOs that already work with banks to offer merchant services can cross-sell payroll card solutions on behalf of their banks. "There is a strong cross-sell opportunity for ISOs in this channel, just like with other prepaid cards," she said.
Good prospects for ISOs to investigate for possible payroll card programs include:
Fuzzell pointed out that the infrastructure to handle payroll cards has matured, making widespread adoption now possible. Back in the late 1990s when payroll cards were introduced, they had limited appeal because of limitations of the cards and the programs. For example, the cards were not transportable from one employer to another, and issuers realized limited revenues from them, she said.
Other problems involved how to deliver cards to employees and the uncertainty over whether the funds loaded onto the cards were insured (like funds in checking and savings accounts) by the Federal Deposit Insurance Corp., Fuzzell noted.
But those roadblocks have been cleared, she said. The cards are now FDIC-insured and come with consumer data privacy protections, such as Regulation E of the Electronic Fund Transfer Act and the USA Patriot Act. Moreover, employees who change jobs no longer lose the use of the cards. Additionally, providers and customers share many more touch points today - through e-mail, the Internet, text messaging and interactive voice response systems - to help drive revenue, she said.
Fuzzell stressed that the most important aspect of successful payroll card programs is that employers must be set up with direct deposit. "Once the employee is on direct deposit, they are just like any other direct deposit customers," she said. "There is no special process that the employer has to go through."
Fuzzell conceded that payroll card implementations are not without complexities and difficulties, but she believes the rewards are clear for all constituencies. "We are fortunate to have a growing market in difficult economic times," she said. "The number of unbanked employees is growing. It's a win-win product solution."
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