Did you know that this is National Payroll Week?
The American Payroll Association first designated the week in 1996 to coincide with Labor Day to celebrate the "economic, cultural, and social achievements of workers and the significance of 'an honest day's work for an honest day's pay.' "
Payroll professionals collect, report, and deposit about $1.6 trillion, or 64.3% of the annual revenue of the U.S. Treasury, according to the APA.
A spotlight on payroll gets us, as payment industry consultants, thinking about payroll cards. Their merits are seemingly obvious. For the 40 million to 50 million unbanked Americans, direct deposit of a paycheck into a debit card is convenient, safe, and highly cost-effective.
Each pay period, the card is automatically loaded with the full or partial value of an employee's paycheck, depending on the employee's choice. The convenience of not having to come into work to pick up a check or stand in line to cash it is a time saver. The big, "hard dollar" savings is that the cards eliminate the need to pay check-cashing fees.
Furthermore, the benefits extend beyond employees to the employers, as the inefficiencies and costs of issuing paper checks on payday are significantly higher than direct deposit into a payroll card. Paper checks cost $1 to $2 each, while loading a payroll card costs about 20 cents.
Beneficial and cost-effective to both employee and the employer, payroll cards sound like the ultimate no-brainer.
Yet there are approximately 11,000 neighborhood financial services centers which cash more than 180 million checks a year with a face value of more than $55 billion. Payroll checks account for 80% to 90% of that volume. The typical fees for cashing a payroll check are between 2% and 3%.
In June, Wal-Mart Stores Inc. announced plans to open 1,000 in-store MoneyCenters, in part to cash payroll checks to spur in-store transactions.
According to a survey conducted by the APA last year, only 3% of its 22,000 members are currently using payroll cards.
Why aren't more employers using payroll cards? Why aren't more employees insisting on them? And why aren't banks leading the bandwagon on this?
Our firm has a number of clients who serve the unbanked. We often hear and observe that the unbanked are better served by local check cashers than banks in terms of location, friendliness, language, and hours.
We also hear that consumers still don't understand the payroll card but do inherently know and trust cash in their pockets.
From the employer's perspective, the cost of switching from paper checks to payroll cards depends on the payroll system, the number of employees, and frequency of payment.
How do payroll cards get on track? When will the tipping point be?
Assume that a bank branch is not the best place to promote payroll cards to the unbanked, but that tax preparation businesses, immigrant worker centers, and Goodwill Stores are. Online communication loses out to ethnic newspapers, radio, and cable programming.
Ethnic populations frequently rely on word of mouth to try new products. Creating awareness and acceptance of payroll cards as an alternative to check cashers will require significant consumer outreach, but the upside of this effort could be significant.
Automatic Data Processing Inc., Ceridian Corp., and Paychex Inc. need to focus on making employer adoption seamless and have partnerships with the relevant distribution channels. The good news is that the APA's survey also found that 50% of its members are interested in payroll cards.
Hopefully, the tipping point is coming, and millions of Americans and the businesses that employ them can soon benefit from this cost-effective, easy-to-use solution.
