Payroll card providers may be missing an opportunity by failing to reach out enough to small businesses, new survey data suggest.
The survey, commissioned by NACHA, the electronic payments association that oversees automated clearinghouse operating rules, found a massive and apparently willing group of small-business employers for conversion to direct-deposit payroll services but who had not been contacted by banks or vendors that supply them.
Though NACHA did not ask specifically about payroll cards, tying the gap in direct-deposit offerings to an opportunity for payroll card providers makes sense, says Ben Jackson, a senior analyst for the prepaid advisory service at Maynard, Mass.-based Mercator Advisory Group Inc. Many businesses that have seasonal or temporary workers or employees that do not have bank accounts often find payroll cards a good alternative to paper checks, he says.
Moreover, employers often prefer to distribute payroll cards instead of checks because doing so moves them a step closer to all-electronic bookkeeping, says Scott Lang, NACHA senior vice president of association services.
Employees also occasionally favor payroll cards because they help keep funds separate, according to Jackson. Some individuals might work a second job to save for something specific and want to segregate that pay from the general family fund, he says.
Whatever reason resonates with a particular worker or business, financial institutions or payroll-service providers have not contacted many employers lately about direct-deposit services, NACHA’s research found.
Herndon, Va.-based NACHA commissioned eCom Advisors to conduct the study, which included interviews in the third and fourth quarters of last year with 2,249 small-business employers having two to 100 employees and annual revenue of less than $20 million.
Among the respondents, 34% were paying employees by direct deposit, says Ian Macoy, the group’s managing director for government and industry outreach. That left the remaining 66% as candidates for direct deposit, he says, noting the group included 3.1 million companies with 18 million employees.
Of those, about 460,000 represent a “sweet spot” of prime prospects for direct deposit because they closely resemble companies already using the service, according to NACHA estimates based on combining survey findings with census data.
Moreover, employers and employees at those prime-prospect companies already understand the convenience and security of direct deposit but have not been contacted recently for conversion, the study found.
“To us it would seem to be a matter of engaging and selling small business on the benefits of direct deposit and doing so in concert with other financial services, says Lang.
What do you think about this? Send us your feedback.
