Payroll cards catching on
Cori Takemoto Williams/The Arizona Republic
U-Haul employees Manny Garcia (left) and Sam Austin show off their payroll cards, which the company offers instead of issuing paper paychecks of direct deposit. Both enjoy the convenience of the cards.
By Russ Wiles
The Arizona Republic
Feb. 28, 2003
The next time payday rolls around, imagine going without a paycheck or direct-deposit slip. Instead, your money essentially is downloaded onto a piece of plastic that resembles a credit card. From that, you make ATM withdrawals and debitlike purchases.
The paperless reality of "payroll cards" is slowly catching on as employers look for ways to cut costs and serve a rising number of workers who don't have bank accounts.
"It lets me avoid standing in line at a bank to cash a check," said Sam Austin, a payroll-card-toting employee at U-Haul International in Phoenix. "Plus, I don't have to carry around a lot of cash."
It costs about $1.90 on average for employers to cut paychecks in-house, reports Ariana-Michele Moore of Celent Communications, a research firm in New York. "Converting to an electronic system can result in cost savings as high as 75 percent," she said.
Payroll cards have been around since the late 1990s but haven't yet gained broad acceptance. Lack of education and awareness among potential users are seen as barriers. That said, about 1 million households now use payroll cards nationally, according to Celent Communications. The company provided no estimates for Arizona or other states.
The cards are designed for the 13 percent of households lacking transactional bank accounts such as checking. These tend to be low-income people not likely to keep much cash in a bank and who thus would tend to run up low-balance fees. Many of these people instead rely on paycheck-cashing outlets, where they incur fees averaging 2.5 percent, Moore said.
Students, other part-time workers and recent immigrants unfamiliar with U.S. banks are potential card users.
"We have a lot of student workers for whom this is their first job," said Jennifer Flachman, a spokeswoman for U-Haul, where 14 percent of the company's 16,500 U.S. employees participate in the year-old payroll card program. "Many of them have never had a bank account."
An additional 75 percent of U-Haul employees use direct deposit, meaning only about 10 percent rely on paper checks.
Other payroll-card conveniences include access to ATMs and debit card networks, plus the ability to verify transactions online.
"I get a monthly statement that itemizes all deposits and purchases," Austin said. "The only thing I can't do is make a deposit myself into the account."
But users can transfer cash from their cards to certain types of savings and investment accounts, and they can pay utility and other bills.
For people who don't own credit or debit cards, payroll cards offer a way to shop online, said Dub Newman, who oversees commercial card services for Bank One in Chicago.
Manny Garcia, another U-Haul worker in Phoenix, continues to use his payroll card even though he recently opened a bank account.
"I like the convenience of not having to deal with paper checks," he said.
Various costs may apply on the cards, including account set-up, transaction and monthly service fees, plus ATM charges and expenses to download payroll funds to accounts supporting the cards. Many of these charges are fairly nominal, ranging from about 50 cents to $4. Employers subsidize many if not most costs, but workers may bear some expenses.
Meanwhile, banks aren't exactly watching these developments from the sidelines. For them, payroll cards are a way to cement ties with their corporate clients while reaching out to non-traditional retail customers. Many banks build awareness by putting their logos on cards they issue and by sending statements to users.
"It's an opportunity to introduce customers to other products," Newman said.
Card-issuing banks include Bank One, Bank of America and Citibank. Visa and MasterCard also are involved, allowing debit transactions within their networks.
Bank One's payroll card clients include Ruth's Chris Steak Houses, while Trammell Crow Residential is among the firms served by Bank of America.
In the future, Moore said, payroll cards could be used for additional services such as reimbursing work-related expenses, checking employees on or off the clock, logging them on or off cash registers and enabling them to pay for prescription drugs and other health benefits.
As companies seek new ways to cut costs, payroll cards will become increasingly viable, Moore predicts. Driving the trend will be an expected rise in the number of "unbanked" households, spurred by immigration.
Reach the reporter at email@example.com or (602) 444-8616.