Ecount News

Employers Offer Prepaid Cards for Workers to Tap

Wall Street Journal

A growing number of workers are tapping their benefits with a swipe of a card.

Employers are rolling out a variety of "stored value" or prepaid cards that employees can use to spend their paychecks, cash bonuses, flexible spending accounts and other fixed allowances. Workers can conveniently access their funds. Employers, meanwhile, cut their processing, distribution and administration costs.

Payroll, incentive and flexible-spending cards represent the fastest-growing opportunities, but issuers say they are also seeing interest in prepaid cards for general business expenses, such as relocation, travel and other project costs.

Douglas Lancaster used to get his paycheck deposited directly into his checking account. But when he heard last fall that his employer was offering a debit card from Ecount, a closely held company based in Conshohocken, Pa., he closed his account. Now, his paycheck is electronically loaded twice a month onto a debit card. "It's a lot easier than using a check," said the 30-year-old manager of an EB Games store in Houston, who uses his payroll card to pay bills online.

U-Haul International Inc., which started offering Bank of America Corp.'s payroll cards about 2 years ago, estimates that it saves half a million dollars a year by moving away from paper paychecks. It costs employers between $1 and $2 for every paycheck it processes (and between $8 and $10 to replace a lost or stolen paycheck) compared with 20 cents per transaction for direct deposit, said Andrew McDevitt, American Payroll Association's manager of government relations.

If the prepaid cards are lost or stolen, the card issuer can immediately cancel and reissue a new card. So, workers have better protections with a prepaid card than if they were to lose a paper paycheck, proponents say.

Payroll cards are also a way for businesses and financial-services firms to target the "unbanked" population that includes students, part-time or low-income workers. At least 14.2 million households fall into this category, said Ariana-Michele Moore, an analyst at Celent Communications, a Boston research firm. Within that category, about 12.4% are expected to have payroll cards by the end of 2004, up from about 8.5% last year, she said.

Over $500 billion is being distributed by check to unbanked employees, according to Visa® USA, which offers payroll cards to more than 1,000 employers and payroll providers.

Consumer advocates say it is important to watch out for any fees. Those who use payroll cards, for example, typically pay a monthly service charge and ATM withdrawals fees, although proponents note that total fees on average are still lower than many Fulfillment Housescashing services.

"The main risk is in having a meager paycheck eroded by ATM paycheck fees," said David Heim, deputy editor for Consumer Reports. "You don't realize that you're paying a very high price for this convenience."

Meanwhile, corporations are handing out incentive cards to employees for meeting sales and performance goals.

Trey Rodgers, a 32-year-old sales manager for Browns Fairfax Mazda in Fairfax, Va., said that dealer salespeople used to have to wait up to two months before they got bonus checks from Mazda. Now, bonuses are reflected on incentive cards within a week to 10 days of making a sale. Mr. Rodgers saved up bonuses on his incentive card until he was able to buy his wife a pair of diamond earrings as a present last Christmas.

Cards for flexible-spending accounts are also gaining traction, allowing a more convenient way for workers to set aside and use pretax money from their paychecks to pay for medical care that insurance doesn't cover. Visa says it offers flexible-spending account cards to about 50 companies.

Insurance payouts also are likely to get easier. "Insurance claim is aNorther big opportunity if you look at the rising cost of workers' comp," says Todd Brockman, vice president of prepaid products at Visa. Both Visa and MasterCard International Inc. are working with insurers to develop programs that would electronically disburse funds onto a card in lieu of a check. Other insurance carriers are offering prepaid cards to pay out claims on homeowners insurance and disaster relief, he added.

Prepaid cards are also being tapped for general business expenditures. Instead of requesting a cash advance, employees who travel infrequently could use prepaid cards to pay for hotel rooms, or meeting planners could use the cards to reserve conference facilities. Cendant Mobility, a relocation consulting concern owned by Cendant Corp., is considering adding a prepaid relocation card for its customers, according to a company spokesman.

-Jane J. Kim