Workers with Bank Accounts Help Drive Payroll Card Growth

Processors of stored-value transactions are noting a new development that's driving growth in payroll cards, perhaps the hottest prepaid card market: Increasingly, employers are issuing them to workers with checking accounts and other established banking relationships, according to an article set to appear in the May issue of Digital Transactions magazine. In March, Conshohocken, Pa.-based prepaid Visa card marketer and processor Ecount Inc. reported that in a random survey of 2,000 of its payroll cardholders, 54% had a bank account and were using direct deposit. Many users elect to deposit part of their pay onto the Ecount Paycard as a way to save or park money in anticipation of planned purchases, according to Ecount.. This development shows the prepaid plastic, which originally found most of its market among the unbanked (employees lacking bank accounts), is moving rapidly beyond this franchise. “I don't find that particularly surprising,” says Jennifer Tescher, director of The Center for Financial Services Innovation, a nonprofit affiliate of Chicago-based community-development banking firm ShoreBank Corp. charged with making banking services more accessible to the unbanked. Banked consumers are becoming interested in payroll cards because providers are promoting them as money-management tools and adding utility by linking them to tax-favored flexible-spending accounts and benefits programs, Tescher and other experts say. Up-and-coming products even include “portable” cards that will go with a worker from job to job. The new, more feature-laden model favors the open-loop, or general-purpose, payroll card. Traditional PIN-based, or closed-loop, payroll cards may have point-of-sale utility if the processor has an agreement with an electronic funds transfer network. But a Visa- or MasterCard-branded payroll card could be used for spending at about 6 million merchant locations in the U.S. alone. A recent report from Boston-based market researcher Aite Group LLC projects that spending on open-loop payroll cards alone is poised to grow from an estimated $2.7 billion in 2004 to $27.1 billion in 2009. And by generating interchange from point-of-sale transactions, open-loop cards also provide an extra revenue stream for the issuer beyond transaction fees charged to users or fees paid by employers. Aite's report says about 10% of open-loop payroll card revenues come from interchange. Payroll cards with a major brand on them also appeal to those moving up the lower rungs of the economic ladder. “Prepaid cards in general have significant aspirational quality to them, in large part because of that brand,” says Tescher.