Payroll Cards: A Direct Deposit Solution for the Unbanked

For the past several years, US corporations and financial institutions have focused on converting America’s payrolls from checks to direct deposit. The motivation has been simple: money. Converting to an electronic system can result in cost savings as high as 75 percent. Today, over 55 percent of Americans are paid via direct deposit. However, many employees, especially those without transactional bank accounts, are unable to use direct deposit. They represent a missed opportunity for financial institutions and corporations.

Providers of stored value products have leveraged their platforms to develop payroll cards, which capture this missed opportunity. Stored value programs can deliver funds electronically to employees, commonly referred to as the "unbanked," who do not have a transactional bank account. Payrolls may be loaded onto these cards, which are then used to access payroll funds through ATM withdrawals, debit-card purchases and card drafts (checks written on card funds).

In a new report, Ariana-Michele Moore, analyst at Celent Communications, examines the market opportunity for payroll cards.

"Payroll cards benefit all parties in the transaction. They reduce the cost of cutting a paycheck for the employer; reduce the hassle of paper checks for the employee and increases his access to the funds; and capture additional revenue for the banks offering the program," comments Moore. "However, they are not a fool-proof solution and a program must be carefully implemented in order for it to succeed. Yet, we do expect to see strong adoption in the years to come."

This report provides an overview of a payroll card program, evaluates the cost and benefits of using one, gives insight into the various business models associated with payroll cards, and discusses the firms providing payroll cards as well as what we can expect to see from payroll card programs going forward.