A relatively new alternative to paper paychecks is being touted as a way to cut payroll-processing costs and to free employees who dont have checking accounts from high check-cashing fees.
Called payroll cards, the devices appear to be gaining ground nationally, but havent taken hold here. Still, Spokane banks and credit unions are watching the trend with interest.
Payroll cards, or stored-value cards as theyre sometimes called, work like debit and automated-teller-machine cards. Employers issue the cards to their workers, then each payday deposit funds into accounts for employees who use the cards. Banks, in association with credit-card processors VISA and MasterCard, have set up the programs as another service they offer employers.
Weve heard about them, but we havent seen any of them, says Randall Fewel, president and CEO of Inland Northwest Bank, of Spokane. I dont see the advantage for the employee if that person has a bank account. Youre still better getting direct deposit. If you have a problem (with direct deposit) you can go into a local branch. If you have the card and you have issues, youll be calling an 800 number.
Payroll cards benefit employers because they are cheaper than issuing paychecks.
The banking industry estimates that millions of U.S. workers dont have bank accounts; proponents of the cards say those workers are at whom the devices are aimed.
Its really a product thats targeted for people who are un-banked, says Amy McDevitt, a Boise-based spokeswoman for Wells Fargo Bank. We would rather see them have checking accounts. Paycards provide a safer way to receive money instead of cash. The goal is to get people banked.
McDevitt says she believes that 20 percent of U.S. workers dont have bank accounts.
Fewel says, There are a lot of people who dont have checking accounts. I have heard 17 percent of the adult population does not have them. It baffles me why they dont have checking accounts because all of us have free checking.
McDevitt and others say employers can save money by issuing payroll cards rather than writing paychecks.
It costs employers $53 for each employee annually to write payroll checks, she says. Thats significant.
McDevitt says Wells Fargo plans to launch its Paycard program on April 1, but doesnt disclose how much it will charge employers for using the cards.
She says, There is an initial implementation fee, and there is a monthly maintenance fee for each card that is issued.
Phoenix-based U-Haul International Inc. says it saves $500,000 annually by offering payroll cards and direct deposit to its employees. U-Haul no longer makes out payroll checks. It says three U-Haul employees in Spokane use the cards.
So far, its mostly big national banks that offer the cards, including Bank of America, U.S. Bancorp, and Bank One Corp.
In order for the cards to be accepted by merchants, VISA and MasterCard partnered with banks that offer the program.
MasterCard says it started its payroll-card program in January. VISA launched that service nearly three years ago, but it didnt gain popularity until recently, says Nizam Antoo, VISAs San Francisco-based product director for payroll cards. VISA has payroll-card agreements with more than 20 banks and that several major national companies, including McDonalds Corp., FedEx Corp., and Payless ShoeSource Inc. offer their employees the cards.
VISA says that hundreds of thousands of smaller businesses are participating in it, but declines to say how many payroll cards it has issued.
We have seen triple-digit growth since 2002, and we expect to see that the next couple of years, says Antoo. The feedback in terms of satisfaction from the card users is extremely high. The banks experience very little attrition. Anecdotally, we are hearing from banks that cardholders want to experience additional products with them. The cardholders are able to get on a pathway to sound financial management.
Of the seven Spokane-area banks and credit unions contacted for this story, none offered payroll cards, but all were aware of them. So is the state of Washington.
Its something were just starting to look at, says Scott Kinney, a spokesman for the state Department of Financial Institutions. Some of the cards have fees every time you use them. Thats what were starting to look into, and who regulates this, and who makes sure consumers arent being taken advantage of.
The Washington Credit Union League, a trade association for the 170 credit unions in the state, plans to hold a series of meetings this month to discuss the ramifications of payroll cards.
We will be looking into the following issues: whether the funds are insured, are employees protected if the cards are lost or stolen, and if the customers have disincentive to save as a result, says Jamie Chase, a Federal Way-based spokeswoman for the association.
There are downsides to the cards. When a user of such a card tries to use it at an ATM, the user might be charged a fee of $1.50 to $5.
Also, some merchants charge fees of between $1.50 and $3 when a card is used to buy products or services.
Wells Fargos program allows for one free ATM cash withdrawal at one of the banks ATMs per pay period. After that, its a $1 fee for every withdrawal at Wells Fargos ATMs, and a $2 fee per withdrawal at any non-Wells Fargo ATM. The bank that owns the non-Wells Fargo ATM also might charge a fee.
Wells Fargo also charges a $1 fee for every purchase that requires a personal identification number, or PIN. It says signature-based purchases are free.
Like other bankers here, Peter Stanton, chairman and CEO of Washington Trust Bank, of Spokane, raises questions about what happens when a payroll card is stolen. What seems like a convenience may not be a good idea, Stanton says.
He says, though that using a payroll card is better than cashing a payroll check at a check-cashing business.
Theyre more acceptable than check-cashing operations, which charge exorbitant fees and are pretty popular, says Stanton. Weve done a lot to make our branches more consumer-friendly. But we cant force them to come in.
U-Haul, which started offering payroll cards to its employees about two years ago, was one of the first national companies to embrace the technology.
We saved $60,000 because we didnt have to overnight the checks, says Sam Austin, U-Hauls Phoenix-based payroll manager. We dont have people handling paper. We dont have lost checks and bank reconciliations I used to have 15 people in my department; now, I have 11.
Austin says payroll cards cost an employer a little more than direct deposit. Some say the industry standard for direct deposit is a charge of about 20 cents each time a direct deposit is made.
Austin says that when employees leave U-Haul, I dont have to terminate the cards. I just stop putting money in the accounts. Employees can take the card with them to their next employer.
Austin says 3,000 of U-Hauls 17,000 employees use the payroll cards, which in the big rental companys case are issued by Bank of America.
U-Hauls payroll cards are Federal Deposit Insurance Corp. protected. For the first year they have them, employees dont pay a monthly fee for the cards.
After that employees pay a $1.50 monthly service charge. They get one free withdrawal from a Bank of America ATM per week. There are no additional charges for employees to use cards at merchants who accept VISA. Its impossible to overdraw the card, because once the money is gone in the employees account, its gone.
Our employees get a monthly statement, and they have Web access to check their account, says Austin. People that didnt have a bank were paying check-cashing places a lot of money. They would charge employees $3 to $5 for each check they cashed.
Austin says it took some time for employees to adjust to the cards.
At first, people would take all the cash out, he says. Now it appears theyre using the card as they need it. Its helping people manage their money a whole lot better.
The cards appear to be gaining popularity with U-Haul employees, he says.
Weve had a couple of people in the corporate office switch from the traditional direct deposit to the payroll card, Austin says. I personally have one in addition to direct deposit. I put my fun money in the card.
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