With Stricter Rules Ahead, Prepaid Issuers Cling to Payroll Speed

With the Consumer Financial Protection Bureau expected to release tighter rules for prepaid cards in the next several weeks, prepaid issuers are pushing what they see as advantages over banks, such as fast access to payroll funds.

American Express Serve, NetSpend, Green Dot and RushCard are among the prepaid card companies that boast they have been voluntarily operating in a real-time payments mode for paycheck availability. The same-day ACH rules from Nacha going into effect on Sept. 23 aren’t likely to affect this capability, but banks will have the option to match this speed; even without it, they will still compete on price and other factors.

Prepaid card issuers typically advertise that customers may receive their wages as soon as they get notification of a pending payment—at least two days early—which is a boon to those living paycheck to paycheck.

“We make our customers’ direct-deposit funds available as near real-time as we can, when we see the inbound message from the clearinghouse, well in advance of the funds actually arriving,” a RushCard spokesperson explained.

TSYS' NetSpend posts customers’ wage deposits within minutes of receiving the file, which results in NetSpend posting deposits up to two days before the settlement date, said a NetSpend spokesperson.

It’s a practice some banks also follow, but prepaid card issuers are confident they will continue to be able to tout their advantage for at least the next couple of years.

The banking industry is nearing the first phase of new Nacha policies to drive faster payments, in which same-day service will be an option only for payments where the sender is crediting the account of the receiver, which experts say will likely only affect a subset of payroll payments.

Employers will likely use same-day ACH for paychecks only in special circumstances, such as correcting errors, reimbursing for hourly work or expenses and finalizing payments to terminated employees, said Tim Sloane, vice president of payments innovations at Mercator Advisory Group.

The federal government announced it will not be participating in the first phase of
same-day ACH payments. “Information regarding the federal government’s participation in later implementation [of same-day ACH] phases will the forthcoming,” the Federal Reserve Bank Services said in an FAQ.

“Given the rolling phase-in and adoption of same-day ACH, it is unlikely to have a
significant impact on the prepaid industry in the immediate future,” said Brad Fauss, president and CEO of the Network Branded Prepaid Card Association based in Washington, D.C. He added that the organization is closely monitoring the rules' effects on customers' needs.

"Same-day ACH isn't going to happen immediately for many of those funding payrolls, which
means RushCard's two-day advantage will continue to be relevant," the RushCard spokeswoman concluded.

It’s one load off prepaid card issuers’ minds as they await rule changes that could affect other aspects of their industry, analysts said. The new rules for prepaid issuers were first proposed two years ago in an 870-page document from the CFPB, and are expected to be finalized in the next month after more than 5,000 public comment letters. The rules are expected to tighten standards for overdraft policies and restrict virtual currencies.