Some time ago, at the beginning of the 1990s in one country with a high level of citizens’ income, there was an increased interest in new payroll products.
Strange as it may seem at first glance, financial institutions of the USA were concerned about the problems of payroll projects.
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Why?
Indeed, why would U.S. banks start issuing payroll cards? Every U.S. citizen of legal age already has many debits, credit, or charge cards. So who might payroll cards have been designed for?
According to American analysts, there is still a niche for such products. And the niche is very significant. For a long period (actually, for the past 30 years), banks and other financial institutions in the U.S. have been trying to fight paper paychecks, which are issued to employees of private and public companies and organizations with a frequency of once every two weeks.
After receiving a paycheck, the employee of the company or organization goes to “their” bank and makes a deposit or cashes the check.
A “combination” of these procedures is also possible: a part of the amount written in the check can be cashed, and the rest can be deposited in a bank account.
The importance of these checks in American life has been increasing significantly, as well as the importance of paystubs. (
For instance, among the most important things to consider when buying a house is the concern about how to get your employer’s paystubs for the past three months.)
Both banks and companies, who prepare paychecks for their employees, have long been convinced that the operations involved in preparing and processing paper checks are costly.
However, there was no alternative to payroll cheques for a long time. In the early 90s, some large companies began to offer their employees the possibility of automatically transferring salaries to bank accounts without issuing paper checks.
This practice became quite widespread during the decade — mainly among large companies and organizations.
However, small companies continued to give their staff paper payroll checks because a fairly large percentage of employees do not have bank accounts.
How Many People?
According to Total System Services, a U.S. payments company, about 20 percent of U.S. workers do not have bank accounts.
The vast majority of these people work in small service or trading companies, where income is low compared to large and medium-sized organizations.
Small companies also employ the bulk of part-time or temporary workers. Due to their low-income levels and high mobility (frequent job changes), these workers also do not have bank accounts.
Thus, small U.S. companies are a potential market for payroll cards.
The unprecedented phase of economic recovery has strengthened and increased the profitability of small businesses in the U.S. U.S. banks have become more attentive to the requests of small companies.
Interbank competition forced banks and other financial companies around the country to enter the market with a wide range of products and services specifically designed for small and medium-sized businesses.
In the late ’90s, the leading payment systems — VisaUSA, MasterCard, and AmericanExpress — began “bombarding” small businesses with offers of specialized cards for accounting, financial, and consulting services.
At the same period, the payment systems and participating banks began to receive requests from small companies to develop alternatives to paper salary checks.
Who Benefited?
The payroll card procedure is certainly beneficial to small companies. Card technology allows the transfer of all payroll “accounting” to the issuing bank, thereby freeing the manager to fill out numerous papers.
In principle, salary cards work better for employees of such companies because they allow not to pay the bank commission for cashing the salary check (up to $10 per transaction if you do not have a bank account).
In addition, unlike the check holder, the payroll cardholder is not required to withdraw the entire amount from the card at once (again, if the employee does not have a bank account).
Payroll cards are also beneficial to the issuers because they give them access to cheap and relatively long-term money.
With the beginning of the salary project, the bank immediately gets a lot of new customers, who, although not rich, are reliable because their salary is linked to the company account in the bank.
Who is at a Disadvantage?
There is an established check-cashing industry in the United States, where banks and specialized companies play an active role. Unlike banks, most of these companies provide their services 24/7.
If the employers replace paychecks with payroll cards for a significant number of working-age people in the U.S., the “cashing” companies could lose the bulk of their business.
The appearance of payroll cards in the U.S. market to replace checks was, in principle, disadvantageous to those banks that had no chance of becoming issuers of such cards.
While most U.S. banks are unhappy with the costs of cashing and processing paper checks, for some of them, cashing is a profitable business.
Finally, the mass issuance of magnetic stripe prepaid payroll cards may have sparked another round of debate over the desirability and speed of migration to microprocessor technology in the U.S. card market.
If magnetic stripe payroll cards became popular with banks, small companies, and their employees, it would give another trump card to opponents of switching bank portfolios to chip-based cards.
What We Have Now
Today, the number of payroll cards in the USA has exceeded 8 million. They are an all-around solution convenient for employers and employees. However, whether to adopt this method of paying a salary is entirely up to you.
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