Visa Prepaid Payroll Card Draws Name Bank Issuers

Visa U.S.A. has formally introduced a prepaid payroll card for banks to offer to corporate customers and has named five major banks that are or will begin issuing it.

Payroll cards are not new — a few bank companies such as First Tennessee National Corp. and Comerica Inc. have issued them under the Visa and MasterCard brands, respectively, for the past few years — but until now banks have largely set up systems of their own to offer the products, which let companies pay unbanked workers with a card linked to a deposit account rather than with a paper check.

Visa said in July that it was offering a system for banks to issue the cards uniformly. The five it has already lined up are Bank of America Corp., Bank One Corp., First Tennessee, FleetBoston Financial Corp., and U.S. Bancorp.

The bankers see payroll cards as a gateway to more formal banking relationships with these employees. First Tennessee, which in 1999 became one of the first banks to issue them, said they have already paid off, with 2,000 issued to more than 100 companies.

Robert Sims, the Memphis company’s vice president and mass-market manager, said, “Where I see most of my attrition over these two years is not people walking away from the program but people saying, ‘You know, I’d like to get a checking account.’ ”

Mr. Sims conducted a study of the product in 1998 and met resistance at First Tennessee. “Everyone was saying, ‘This is crazy, forget it,’ ” he said, but he managed to enlist some of his colleagues’ support.

He called last month’s payroll card announcement from Visa “truly a Visa launch, because now they’ve put their stamp of approval on it. They’ve done the research and put some legs under the table to say, ‘Yep, the payroll card is a good product. Here’s how we think it should be offered.’ ”

Previous payroll card programs failed to catch on because they were not set up like direct deposit accounts, Mr. Sims said. “You had to treat these people differently,” he said. “You were forcing the treasury folks to have a different file for them. They had to round up their pay to even $10 amounts. It was just a hassle.”

At the end of a pay period, a staff member’s wages are electronically loaded into the account through the automated clearing house. The cardholder has immediate access to the funds through debit transactions at the point of sale or can use an automated teller machine to withdraw the card’s value.

“It’s a great product because it’s a win-win situation for the bank, the employer, and the employee — it saves everybody money,” said Jim Geeslin, the vice president of business development for U.S. Bancorp in Minneapolis.

Unlike a gift card, which cannot be replaced if it is lost, “with this thing you get a new card — the money is still sitting in the account,” said Thomas Kelly, a spokesman for Chicago-based Bank One. “There are a lot of reasons” people do not have banking accounts, “but for whatever reason, here’s a way to give them an initial relationship. They can expand or not expand as they choose to and as their credit history allows them to.”

Visa payroll cards are protected under the association’s zero-liability policy, which means that if a card is stolen or used without the cardholder’s authorization, the cardholder is not responsible for any of the charges.

Because the payroll card works like a direct deposit, the wages are immediately available to the employee. If payday coincides with the employee’s day off, he or she does not have to go to the workplace to pick up a paper check but can access the funds through an ATM or retailers that take Visa.

The employer’s savings could be substantial. The cost of issuing a single check — including printing, handling, and distribution — is about $1.25 per employee, according to Nacha, the electronic payments association. The figure takes into account the cost in lost productivity when employees leave the job on company time to get checks cashed.

Visa is also touting the payroll card as a way to increase employee retention, because workers would see it as a benefit from the company.

Todd Brockman, the vice president of prepaid consumer products for Visa U.S.A., listed “three key industries that have had a lot of interest in this product: the hospitality industry, the quick-service restaurants industry, and discount retail.”

Visa said that payroll cards are good for employees, who save the money they would have spent cashing a check, but some banks do charge them fees. First Tennessee National does not charge a fee to the companies but charges personnel in Tennessee $5 a month and staffers elsewhere $3 a month.

Bank of America, on the other hand, charges a small fee to the employer and no fee to the employee. U.S. Bancorp charges small fees to both employer and employee.

Bank of America has offered a proprietary payroll card, Cashpay, for two and a half years and has opened 75,000 accounts. But the card did not have a Visa logo and thus could be used only at ATMs and certain merchants. The bank plans to continue offering its proprietary card but will now supplement it with the Visa-branded card, which will be accepted more broadly. “This has been a focus product for a number of years,” said Jeff Rankin, the senior manager of corporate and commercial card programs.

Hank Shyne, the executive director of Financial Service Centers of America, in Hackensack, N.J., said the payroll card would have an impact on the check-cashing industry but that it is hard to say just how big.

“We still find that in many markets in the country there are still people who refuse to take direct deposit or anything other than a paper check,” Mr. Shyne said. One of the main reasons employees insist on paper checks, he discovered, is that they “don’t want their spouse to know how much they make.”

“They go to a check casher, cash their check, and then come home to their spouse, and say, ‘Here’s the money that you have to work with,’ ” he said.