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The content of this presentation is designed to provide practical
information concerning the subject matter covered and is
provided with the understanding that none of the presenters are
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Legal Disclaimer
4. 4
Payroll Card Action Group
• Action Group established to focus on the opportunities and
challenges of payroll cards
• Participating members representing Issuing Banks, Program
Managers, Card Associations, Processors, Attorneys,
Employers
• Focus is solely on Payroll Cards as a component of electronic
wage payment
5. The Payroll Card Action Group Mission
5
• To Advocate, Educate, Protect and Promote Payroll Card
adoption
• Provide a fact-based voice to government, employers, media
and consumers
• To be the Trusted Advisor of the Paycard Industry via
continued awareness, monitoring and reporting of Federal &
State Legislative initiatives as well as facilitating efforts to
clarify and defend our best practices
• To be the recognized gathering coordination point for the
industry
8. Introduction to Electronic Wage Payment
8
• The “Old Standard”
– Pay Checks
– Direct Deposit
• The “New Norm”
– Direct Deposit
– Payroll Card
9. What are Payroll Cards?
9
• A practical and cost-effective method to pay employees
electronically
• A way for employees to access wages 24 hours via ATMs, over-
the counter cash withdrawals and convenience checks
• A way for employees to spend wages at PIN and Association-
branded signature-based transaction locations and on the
Internet
• A way for employees to eliminate check-cashing fees, waiting
for paychecks to arrive in the mail, and other payday burdens
10. Key Requirements
10
• Free and Clear Access to funds
– ATM
– OTC
– Checks
– Personal Money Orders
• Regulation E
– Dispute resolution process
– Statement availability
• Annual notifications
• Escheatment
16. Issuer, Program Manager - Benefits
16
• Cardholder and Client Value
• Inclusive
• Durable
• Well-known customers
• Brand association
• Recurring revenue streams
– Product leverage
17. 17
Hourly Employee
May work two jobs to make
ends meet. Needs to save time
and avoid check cashing fees.
Young Employee
Has after school and summer
jobs. Needs an easy way to
access money, spend online
and in stores - just like an
adult.
New Immigrant
No credit record and
uncomfortable with financial
institutions. Needs to keep
money safe and make
purchases.
Payroll cards provide a solution for the varying needs of the underserved segment
Professional Adult
Well compensated. Had prior
credit issues but wants to
function in the mainstream.
The Underserved Segment
19. 19
Employer Motivation
• Cost-savings – less expensive than checks
• Security and safety
• Assisting the underserved
• Increased efficiencies
• Ability to pay same-day
• Turnover
• Escheatment
• Disaster recovery
20. 20
Known Benefits
• Safety
• Electronic pay – faster and more secure
• Efficient
• Fit culture of company and employee base
• Cost-effective
21. 21
Unexpected Benefits
• Significantly increased electronic pay participation
• Ease of program management and administration
• Flexibility of services and fee structure
• Employees earnestly accepted
22. 22
Employer Benefits
• Cost-savings - Reduces costs associated with issuing,
delivering, replacing and reconciling paper paychecks
• Protection - Reduces duplicate check fraud
• Security - Provides safe and efficient electronic delivery of
payroll funds
• Process Improvements – Transfers escheatment liability to the
financial institution that actually holds the employee's funds
23. 23
Employer Benefits
• Disaster Recovery Planning - Eliminates issues associated with
employee payment following a disabling event that forces
office closures
• Environmental Improvement Programs - Enables companies
to enhance “green” initiatives by eliminating paper processes
• Improved Benefits Program - Allows every employee safe and
immediate access to their payroll -- not just those with a bank
account
• Adoption of Direct Deposit – Increases awareness and
utilization of direct deposit across all employees through
increased communication of payroll options
24. 24
• Each year, as checks travel through the payment cycle, they:
– Use more than 674 million gallons of fuel
– Add 3.6 million tons of CO2 to the environment
Paper check and wage
statement production
• Deforestation
• Paper production
• Printing
Distribution and
transportation
• Raw paper distribution
• Distribution to hiring locations employees collecting pay
when not scheduled to work
• Waste pickup and processing
Check clearing process • Transportation
• Processing of checks via bank and Federal Reserve
• Waste pickup and processing
Waste • Paper check / wage statements thrown away in landfills
• Electricity requirements
• Gasoline
Direct Deposit drastically decreases an employer’s carbon footprint
Employer Benefits – Going Green
25. 25
• Businesses can save $2.87 to $3.15 per transaction by using
Direct Deposit instead of checks1
• Increased productivity
– An average of 8.5 - 24 hours of productivity is lost per employee
per year cashing / depositing paychecks2
– Estimated $3-$5 billion loss in productivity annually2
Example Annual Cost Savings Using Direct Deposit Instead of Paper Checks
Cost Savings per Check $3.00
Paid Employees 5,400
Annual Paper Check Cost Savings: Bi-Weekly
$3.00 cost savings x 5,400 employees x 26 checks
$421,200
1National Automated Clearing House Association 2010
2NACHA - The Electronic Payments Association
Employer Benefits – Cost Savings
26. 26
Employee Benefits
• Ease of use
• Options available for retrieving pay
• Online access and bill pay capability
• Safety and security
• Special programs
• Ability to have a savings account or account for child
• Portability
27. 27
Employee Benefits
• Cost-savings - Eliminates check-cashing fees and costs associated with
bill payment (e.g., money order purchases, postage, travel expenses,
etc.)
• Money Management - Provides employees a better way to manage
their money and track spending
• Safety - Reduces the need to carry large amounts of cash
• Protection – Reg E protects cardholders against unauthorized
purchases
• Acceptance - The card is welcome everywhere “Association” debit
cards are accepted
• Convenience - Makes wages safely and immediately available on
payday
• Faster Access to Pay - Eliminates delays caused by mail delivery
• Prestige - Brings employees into the “mainstream” of society
28. • Incur higher costs of approximately
2.5% of each paycheck
• Check cashing fees
• Money orders
• Transfer fees
• Subject to increased risk of theft
and financial loss due to employee
carrying a large amount of cash
• Turned down for loans due to poor
or no credit history
• Face limited options for cashing
checks
• Transportation costs
28
Sources: Federal Reserve & McKinsey Quarterly
Underserved - Challenges
29. 29
• It is expensive for low income consumers to have a traditional
bank account and use cash
• Prepaid card with direct deposit is an extremely cost effective
option Average Annual Cost of Ownership*
$168
$322
$340
Prepared Card
with Direct Deposit
Basic Bank
Checking Account
Cash
*Source: Bretton Woods, Inc., March 2012
Underserved - Costs
30. 30
Two key findings quoted below:
The study found the pay card is more cost effective than receiving a paper check, let alone
checking accounts. Annual averages: pay card $83; general purpose reloadable prepaid card
$185; cash based lifestyle $256, low balance checking $273. (see chart next page)
Bretton Wood 2011 Payroll Card Study
31. • Termination Pay – Final
Payment
• Weather or other
31
The traditional distribution of paper checks requires 1) the paper check to be delivered
physically and 2) the employee to travel to the delivery point. Natural disasters or personal
challenges could prevent an employee from accessing their paper payroll check.
Employee Benefits – Immediate Payment
32. 32
• Less potential for counterfeit
or stolen checks, altered
amounts, and forged
signatures
• 1.2 million fraudulent checks
enter the banking system
daily
• Electronic payments reduces
exposure to identity theft
Employee Fraud Prevention
34. 34
Payroll Card Product History
• Product developed with the employer in mind
• Primary product focus:
– Employer tools
– Regulations
– Fees
• Market mostly a level playing field with above
35. 35
Growth of Paycards
• 20% CAGR expected through 2016
• Payroll cards about 30% of total prepaid market
• Tipping point (cards vs. checks) in early 2015
36. 36
Source: Aite Group. Feb 2013 Impact Note: “U.S. Payroll Card Programs: Paving the Path for New Revenue”
Payroll Card Up, Checks Down
37. 37
Source: Aite Group. Feb 2013 Impact Note: “U.S. Payroll Card Programs: Paving the Path for New Revenue”
Payroll Card Loads
38. 38
Payroll Card Features
Transaction Types
• Signature, PIN, ATM transactions
• ACH Credits/Debits
• Convenience Checks
Features
• Online Account Center
• Bill Pay
• Customer Service (IVR and Live Agent)
• SMS alert on account balances and deposits
• Account-to-Account Transfers (P2P)
• FDIC Insurance
39. • Arizona
• Colorado
• Delaware
• Florida
• Kansas
• Maine
• Maryland
• Michigan
• Minnesota
• Nevada
• New Hampshire
• New Jersey
• North Dakota
• Oklahoma
• Oregon
• Tennessee
• Utah
• Vermont
• Virginia
• West Virginia 39
More States Recognize Payroll Cards in their
Statutes or Regulations
43. 43
Wage and Hour Requirements
• Federal Wage and Hour Law
– The Fair Labor Standards Act
• State Wage and Hour Law
– 20 states have addressed payroll cards in their statutes or regulations
– Most of the remaining states have issued enforcement positions on
payroll cards
44. 44
Common State Law Requirements
• Full and Free Access to Wages
• Employee Consent
• Disclosure of Terms and Conditions
– Including Fees
• Employee Ownership of Funds
• Compliance with State Paystub Requirements
47. 47
Regulation E
• Compulsory Use Provision
• Periodic Statements
– Flexibility for Payroll Cards
• Error Resolution Requirements
• Disclosure Requirements
48. 48
The Durbin Amendment
• Establishes a cap on interchange fees
• Many feared that Durbin would impact payroll card programs
by:
– Decreasing functionality
– Increasing cost to employers
– Increasing cost to employees
• Post-Durbin Observations
49. 49
The Bank Secrecy Act
• The Prepaid Access Rule
• Customer Identification Programs
– Reliance on I-9 Verification
– Recent Department of Justice Letter
53. • Value prop shifts from employer to employee
No longer just about cost
Employer views the card as a benefit, not just a requirement for payroll
• Better user experience:
Customer Touch Points (Account Center, Mobile, Messaging)
Customer Service
Portability
• Better features:
Money Management
Mobile Applications
Remote Deposit Capture
Savings
Rewards
53
What’s Next: The Cardholder
