Payroll Cards: Adoption Poised for Growth

March 25, 2010

Payroll cards are believed to make up the fastest growing segment of the market for prepaid debit cards. Now, a report from a leading consultancy in the payments space suggests it may be possible to move all of America's unbanked workers to payroll cards.

"By offering employees the choice between direct deposit into a checking account or on to a payroll card, and carefully explaining the benefits of electronic payment, employers can experience high rates of card penetration (as high as 70% in some cases), or even eliminate paper checks altogether when program participation is mandated," says Patricia Hewitt, Director of Debit at Mercator Advisory Group in Boston.

Hewitt is the author of a report released last month by Mercator: Payroll Cards: 100% Electronic Payments 80% of the Time Crossing the Market Finish Line. The report examines the payroll card market and leading U.S. providers (a number it puts at 51).

"While most of the case studies we reviewed were voluntary in their construct, we would anticipate that this will change as the industry settles into a more electronic-friendly regulatory environment," Hewitt explains.

Hewitt points to the decision last year by the retailing giant Wal-Mart requiring all employees not paid via Direct Deposit to enroll in the company's payroll card program. (Click here for October 2009 story on Wal-Mart payroll cards.)

Payroll cards are prepaid debit cards, and are most typically branded MasterCard or Visa. Employers like payroll cards because it extends the benefits of electronic payroll to unbanked workers.  And that's no small number, especially among low-income Americans.

According to the FDIC's National Survey of Unbanked and Underbanked Households, households with yearly earnings below $30,000 account for at least 71% of unbanked households in America.

Not surprisingly, Hewitt found that success in moving unbanked employees to electronic payment methods, like payroll cards, depends in large part on an employer's approach to the task. And she urged folks in human resources departments to consider the entire range of potential uses for prepaid cards, as well as workforce dynamics in crafting prepaid card strategies.

250 microfinance institutions made loans to Americans in 2007.