The good news: Six percent of unbanked workers are accepting payroll cards, which have been out in force only for about three years, in place of paper checks.
The bad news: At least 25 million workers - along with a number of employers - still must be persuaded to use them.
The numbers came from Visa U.S.A. and from a report released Thursday by Celent Communications LLC, a Boston research and consulting firm. The report concluded that the numerous problems involved in spurring adoption - language barriers, distrust of banks, low salaries among unbanked workers, and confusion about what payroll cards are and how they work - will likely continue to make the cards a tough sell, even though workers who use them avoid high check-cashing fees.
Executives at Visa said the payroll product the card association introduced a year ago has generated very good "traction." Current issuers include Bank of America Corp., Bank One Corp., First Tennessee National Corp., J.P. Morgan Chase & Co., and AmSouth Bancorp, and about eight other banks have committed to introducing payroll card programs, the executives said.
In addition, banks have signed up over 100 companies, including Lowe's Cos. Inc., United Parcel Service of America Inc., FedEx Corp., Coca-Cola Co., Blockbuster Inc., and McDonald's Corp., for payroll card programs.
"The reality is exceeding our expectations when we conceived of the card," said Nizam Antoo, the product director for Visa's payroll card.
The cards evolved in part from stored-value cards, such as transit cards. When Visa developed the product, it decided that, to comply with labor laws, the card would have to be offered on a voluntary basis, like direct deposit, Mr. Antoo said. That way, employees who are unhappy with the program revert to another form of payment, he said.
Most of the employees who sign up to use a payroll card tend to stick with it, Visa said.
Companies cannot charge employees for access to their wages. In the case of unbanked employees, that includes not having to pay a surcharge fee at automated teller machines, at least for the first time employees access their funds during a pay period.
Banks that issue payroll cards solve this problem by giving cardholders one free transaction per pay period at their ATMs, said Ariana-Michele Moore, the Celent analyst who wrote the report.
Todd Brockman, Visa's vice president for prepaid products, said about $500 billion is controlled by the unbanked. The ultimate goal for banks is to get "this demographic to have a relationship with a financial institution," he said. "Over time we certainly anticipate many of these Visa payroll cardholders may matriculate into other financial services offered by the bank."
But the Celent report also noted significant barriers to adoption, with "lack of education amongst the unbanked" being the biggest. "This population is primarily accustomed to receiving checks, cashing them, and carrying cash around to make their payments. Convincing them to accept a piece of plastic as their paycheck is quite difficult."
The average unbanked worker's yearly income is $24,000 - though the majority earn under $10,000 - and many of them believe that the fees involved in maintaining a bank account outweigh the benefits, according to Celent. Maintaining a monthly minimum to avoid checking account fees becomes nearly impossible, the report says - the average account fee is about $200 a year, excluding the $20 annual cost for printing checks.
Many workers do not like or trust banks, Ms. Moore said. Sometimes language barriers can also play a role in keeping people unbanked, but many workers are unbanked because they are also out of work, she said.
In addition, the market segment is not highly profitable for banks, she said.
There will be steady but slow growth in payroll cards because of "the fact you have transient and unemployed workers," Ms. Moore said. "They're employed this year, perhaps next year they're not employed and won't [need] a payroll card. So there's going to be fluctuations."
The corporations themselves can, inadvertently, undermine and stunt the growth of payroll cards, she said. Human resources executives may sign off on payroll cards, thinking it is a "a great idea, but they won't follow through."
For banks, strengthening their relationships with corporate clients is one major benefit of promoting a payroll card program, the report says. With many banks pulling out of the lower-income neighborhoods where unbanked employees generally live, banks can use payroll cards to "target the unbanked population without the high cost associated with branch banking."
Banks can also reap fees from corporations for setting up programs, as well as interchange revenue from branded cards when they are used at merchant locations or ATMs, according to Celent.
"The employees are likely to use the cards at the ATM more than at the point of sale," Ms. Moore said. "That's because of their propensity to use cash for transactions rather than a debit card."
