Thea Garon

Payroll card industry has basics down, now time for value adds: CFSI report

Employers of all sizes are taking a greater interest in their employees’ financial health at a time when fintech is creating new ways to help those historically underserved by mainstream finance improve their financial health, the Center for Financial Services Innovation’s (CFSI) senior manager Thea Garon said.

Ms. Garon and associate Kate Flocken wrote 2017 Payroll Industry Scorecard: Assessing Quality in the Payroll Card Industry with CFSI’s Compass Principles, CFSI’s first quality assessment of the payroll card industry.

Thea Garon

The report’s timing is no accident, Ms. Garon explained. In 2016, 3.2 million more people (8.7 million overall) received wages on payroll cards than they did on paper checks. Payroll cards can indeed play a valuable role, but multiple lawsuits, negative press and increased state regulation have stunted dialogue and fostered misunderstanding. As a result stakeholders are analyzing how well employees are educated about their options, whether or not they can access their wages without paying fees, the convenience of participating ATMs, and many other factors.

The report found employers have the basics of card use down fairly well, Ms. Garon said. CFSI gave the industry an A- for its use of core features.

“There’s been slow but steady growth in their adoption and as they do they add more features,” Ms. Garon explained. “There’s been noticeable improvement.”

Most employers using payroll cards have always done a good job with implanting them, but the industry attracted increased scrutiny after a a franchisee of a well-known fast food vendor in Pennsylvania required all employees to receive their wages on payroll cards even if their bank charged them fees. While that particular employer also ignored state wage and labor laws, much of the negative attention focused on the payroll cards.

In some cases legislators introduced overly restrictive legislations and may have taken consumer protections too far, Ms. Garon suggested. In New York restrictions included guarantees that participating ATMs were within close proximity to both the workplace and each employee’s home.

While many efforts had the right intent, they made it harder to follow ideal practices for the industry, Ms. Garon said.

“Let’s take the best practices and guidelines established with industry and create model legislation. Build upon that.”

The Consumer Financial Protection Bureau will soon introduce strong regulation and consumer protections at a national level, she added.

The study evaluated eight payroll cards – ADP’s ALINE Card, Comdata’s Pay Card, First Data’s Money Network, the Global Cash Card, Skylight ONE Card from NetSpend, Transcard, U.S. Bank’s Focus Card and Rapid! Pay Card from Unirush, LLC.

All providers are federally regulated and are backed by FDIC insurance. Each one also allows employees to access their entire sum, make purchases and withdrawals, and get important information for free, but several charge transaction decline fees, inactivity fees and card replacement fees. It is not clear on how well these fees are communicated to employees, Ms. Garon and Ms. Flocken wrote.

“More research is needed to determine how these fees are being communicated to employees, whether employees understand how to avoid them, and how frequently they are incurred.”

All card providers need to clearly explain any fees (not all do) and offer convenient customer service (which all do), the authors added.

There is ample opportunity to add value to payroll cards, Ms. Garon explained. Following wider fintech industry trends, payroll card providers can help users manage their money. Few currently allow users to put aside money into separate funds, employ budgeting and expense tracking tools, or link the payroll card to a separate savings platform. Such options, along with educated customer service representatives who can offer proactive guidance to help people gain the most value from their cards, should be the next step in the industry’s evolution, the report states.

To learn more about CFSI’s research on payroll cards, including accessing the report, click here.

Read more about the Center for Financial Services Innovation:

Financial health as important as inclusion, CFSI President says

Jamie Dimon lauds CFSI’s Financial Solutions Lab

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