Targeting hotels, temporary staffing services, and convenience stores, a Dallas community bank says it has the solution for reducing employers' payroll costs: a payroll card.

Texas Capital Bank, a 1999 start-up, is testing a card that employers could use to pay employees in lieu of paper paychecks. The $297 million-asset bank says it hopes service-industry businesses find the card an attractive way to cut their payroll costs and give them a reason to move their accounts to Texas Capital.

"We don't want a lot of brick-and-mortar branches, so one of the concerns of some businesses that consider us for their banking needs is where their employees will cash their paychecks," said Robert A. McDaniel, a Texas Capital executive vice president and manager of the bank's treasury management department. "Our answer is they don't need paychecks."

Instead of issuing checks, businesses could transfer wages to employee's cards, which could then be used at virtually any ATM or debit card machine without requiring the employee to have a bank account.

From employers' perspective, the system works like direct deposit in that businesses wire funds to an account number on the employee's card. The companies are charged $1.50 each time they load a card with money - a cost comparable with that of direct deposit.

However, direct deposit is often not an option for many service-industry businesses, because as many as 60% to 80% of their employees don't have bank accounts, Mr. McDaniel said. That has often left these businesses with little option other than checks, which typically cost businesses $3.50 to $5 to print, distribute, and reconcile.

Checks are also more expensive for their employees because many turn to check cashers, which often charge 3% to 5% of the check's value.

"This will save employers and employees quite a bit in fees," said Colleen George, vice president of card products with Western Union. Western Union is a subsidiary of First Data Corp., which designed the card system.

Goleta (Calif.) National Bank offers a similar payroll card product through its technology subsidiary.

Texas Capital is testing the system with two of its business customers and has six other businesses waiting to sign up to use the cards when the bank launches the product early next year.

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