08/14/2001 - Updated 10:30 AM ET Payroll may ask: Paper or plastic?
New payroll services for consumers who don't have bank accounts could take a bite out of the lucrative check-cashing industry.
Visa U.S.A. and other companies are coming up with services that replace paychecks with debit cards linked to a bank account. The cards let workers get cash from an automated teller machine and pay for merchandise with plastic instead of cash.
Plastic payroll services are gaining ground because they let banks tap into the $60 billion worth of checks that now bypass them. Check cashers collect $1.5 billion a year in fees for cashing about 180 million checks, according to a 2000 report for the Treasury Department by Dove Consulting.
Banks see the payroll services as a way to bring families without bank accounts into the mainstream financial system. Unbanked families spend about $8 billion a year on a range of financial service fees, Visa estimates.
Payroll services offer potential benefits for workers and employers:
• Workers could save money. Though some states regulate check-cashing outlets, the average fee to cash a government or payroll check is 1.5% to 3% of the face value, according to a study released this month by the Fannie Mae Foundation.
The new payroll services may charge employees a small monthly fee. And as with any debit card, there could be fees for using ATMs not owned by the issuing bank.
• Employers who participate in payroll services could cut the cost of printing and distributing checks. They also could save money now spent for lost-paycheck replacement. The American Payroll Association estimates the cost of replacing lost paychecks totals $48 million a year.
Visa is making a big push in this market with its Visa Payroll card, launched last month. Instead of issuing paychecks, participating employers deposit funds into non-interest-bearing individual bank accounts that are tied to debit cards. The money is FDIC insured, and if a card is lost or stolen, it can be replaced with its full value.
Workers with a Visa Payroll card receive monthly statements. They can check their balance by calling a toll-free number.
Fees will vary according to the financial institution. For example, Bank One says workers will pay around $3 to $5 a month depending on the employer, in addition to any fees for using another bank's ATMs.
Star Systems, which processes ATM and debit transactions, for several years has offered a payroll card tailored to bank and corporate customers. "But within the past year, we've really seen heightened interest from financial institutions," says Star spokeswoman Barbara Span.
The payroll services are ideally suited to retail chains with far-flung employees — often earning minimum wage, Span says.
The check-cashing industry is not worried about the competition.
"There are still many people who prefer dealing with a person and having cash in hand rather than a card," says Hank Shyne, executive director of the Financial Service Centers of America, an industry association. |
