As more employers embrace payroll cards, more banks are starting to issue them.
One of the latest to adopt payroll cards, which work like debit cards, is Sears Roebuck & Co. It announced that it would give employees at its 870 U.S. stores the option of receiving their pay on an ATM card and the ability to access their money at ATMs or at stores that accept PIN debit cards.
MasterCard International, which has supported such programs for about the past two years, has just launched a suite of payroll cards that five banks will offer to commercial clients. Visa U.S.A. has had a payroll card program for about a year with 18 issuer clients.
“We have done a lot of research and investigation in the marketplace,” said Steve Abrams, the senior vice president of corporate payment solutions at MasterCard, which will eventually offer other employee-oriented cards, such as per diem cards and relocation expense cards.
Payroll cards have grown in popularity over the last few years, primarily among companies with a lot of temporary, part-time, or immigrant employees wishing to avoid check-cashing fees. The companies see them as a cheaper alternative to checks.
Bank of America Corp. has been offering payroll cards since 1998, and now has more than 600 clients issuing cards to nearly 100,000 customers. Joseph Lyons, the business manager of prepaid cards at the Charlotte, N.C., company, said that since it began issuing cards with a Visa logo, as opposed to Interlink debit cards, employers have grown more interested in the cards.
“It will change the market a little bit,” Mr. Lyons said. “It opens up the product for a different set of folks and raises awareness.”
Comerica Corp. began issuing payroll cards in October 2000. An executive in charge of the program said the hassles of issuing paychecks in the aftermath of Sept. 11 piqued interest in the product, because the terrorist attacks interrupted mail delivery and left a lot of employers scrambling to get paychecks to outlying offices.
“Many companies cut payroll checks, dropped them in FedEx packages and ran into significant difficulties getting funds to employees,” said Daniel J. McCarty, the senior vice president of Comerica’s CompCARD payroll card program. He said the Detroit company now has about two dozen payroll card client companies that issue around 10,000 of the cards, and he said several more are in various stages of launching the cards.
The first payroll cards typically carried ATM-type features. Visa and MasterCard logos came later.
Back then “It wasn’t a formal product,” said Todd Brockman, vice president of prepaid products for Visa U.S.A. “It was a product that some issuers offered to cash management clients. Many of our issuers saw a likelihood that adoption would increase.”
Visa spent a year developing its payroll card and standardizing the features, Mr. Brockman said. It estimates that $500 billion a year is issued on paper payroll checks to employees who do not have bank accounts, he said. “We think this will be one of the most successful products in prepaid.”
First Banks Inc. of St. Louis has also signed up to offer the MasterCard payroll cards to its customers. “We truly believe the solution will help businesses of all sizes receive operational cost savings as well as enhanced employee productivity,” said Jeffrey Ungerott, a senior vice president at First Banks.
“We have a large restaurant concern that has franchisees with monthly [sales] targets,” Mr. McCarty said. “When they hit them, the company simply puts incentive dollars on to the card and the money is on the card waiting for them.”
Even employees who do not fit the original pay-card profile are being encouraged to use them cards, say MasterCard, Visa and others, because employers like minimizing check-writing.
Companies spend about $1.50 to issue a paycheck, according to Frank D’Angelo, senior vice president and general manager of EFT/Card at the payment processor Metavante Corp., a subsidiary of Marshall & Ilsley Corp.
“The first time you issue a pay-card, it costs $2, so the payback is one or two paychecks,” said Mr. D’Angelo, who has enrolled three banks that will issue the cards. “There is a ripple effect,” he said — companies become interested in the program when they hear about it from others.
