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Prepaid card providers want payroll cards to replace checks. For that to happen, however, providers, employers, and employees all need to change their attitudes, observers say.
Companies such as NetSpend Corp., a provider of general-purpose prepaid cards, view payroll cards as a source of growth. Based in Austin, Texas, NetSpend announced June 26 it had agreed to buy Skylight Financial Inc., a payroll card provider.
But a survey of 2,000 adults with Internet access conducted in April by Chicago-based Mintel International Group Ltd. found 77% of respondents are not interested in receiving their pay on a payroll card. Asked why, 39% said a debit or credit card is more convenient, 31% said they prefer to use cash or checks for purchases, and 28% said they would be afraid of losing the card.
Still, companies offering payroll cards say they have had success in getting employers and consumers to adopt them.
For example, after a year-long test The Members Group, a company that provides services to credit unions, last month began offering payroll cards for credit unions to sell to their business customers. Based in Des Moines, Iowa, The Members Group says it began testing the payroll card in July 2007.
The credit union that took part in the test issued more than 40,000 payroll cards. The Members Group declined to name the credit union.
The Members Group wants credit unions to offer its cards to employers as an alternative to payroll checks, Jeff Falk, director of product development, tells Prepaid Trends.
It provides marketing kits for credit unions to use to sell the cards to their business customers, and it offers marketing kits for employers to use to sell the cards to their employees, Falk says.
"The marketing that the credit union does to their employer groups is critical to help the employers understand that there is an alternative to paper checks," he says.
Companies can save between $2 and $20 per check by using payroll cards, Falk says.
Credit unions can make money on the cards through interchange fees, cardholder fees and the float earned on deposits, he says.
The Members Group earns revenue from a mark-up on transaction fees, by sharing interchange or through a flat fee per card, depending on the size of the program, Falk says.
The cards carry the Visa brand, and the credit union offering them serves as the issuer, he says.
Credit unions get an added benefit when they offer payroll cards to their business customers' employees, Falk says. The credit unions build a relationship with many consumers who do not have bank accounts.
"The credit unions eventually would love to have these folks be members," Falk says. "This is a way to create that relationship where they may not have been eligible for an account."
The credit unions and employers also should teach employees the benefits of the cards, he says.
"Many of these folks are unbanked or underdserved," Falk says. "They have a variety of reasons for why–some are unfamiliar financial institutions, some are leery of the industry, some just want to have that cash in their pocket."
Teaching consumers the ways they can use the cards to manage a budget and the speed with which they can get paid help increase adoption of payroll cards, he says.
Once consumers find out about those advantages, even some with bank accounts choose to have a payroll card, Falk says.
Prepaid card providers that offer payroll cards to employers should look beyond unbanked workers and find ways to attract those with bank accounts, according to the Mercator Advisory Group Inc., which is based in Maynard, Mass.
In a report published this month, Mercator suggests payroll card providers consider adding such features as store discounts and messaging to their payroll cards to attract banked customers.
The card providers also should move beyond selling payroll cards only on their merits as cost-saving tools for employers, Brent Watters, Mercator senior analyst, tells Prepaid Trends.
Payroll cards can provide discounts for employees and give employers a way to communicate with employees, Watters says.
Employers can put messages on Web sites where employees check balances or in text messages sent to employees, he says.
Payroll cards also can give employers the ability to pay temporary workers on the day they work, Watters says.
Those features can build loyalty among workers and encourage them to switch from direct deposit to payroll cards, he says.
"It is more than just a card," Watters says. "It is a relationship-builder between employee and employer."
