The Changing Dynamics of the Payroll Market Place


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The Changing Dynamics of the Payroll Market Place

  1. 1. The Changing Dynamics of thePayroll MarketplaceSeth BrennanVice President – Product ManagerCiti Prepaid ServicesMike PancottoSVP, Compliance and Audit/ModeratorFSV Payment SystemsWednesday, June 26, 2013Workshop BCindy McMullenPayroll ManagerDollar Tree StoresDave HillSenior Director – B2B Product Mgmt.NetSpend CorporationCathy BeydaOf CounselPaul Hastings, LLP© 2013 Network Branded Prepaid Card Association
  2. 2. Thank You To Our Sponsors2Presenting SponsorsSupporting Sponsor Welcoming Reception SponsorAssociate SponsorsFounding Sponsors
  3. 3. The views of the presenters should not be attributed to theirrespective firm or organization, or to the NBPCA.The content of this presentation is designed to provide practicalinformation concerning the subject matter covered and isprovided with the understanding that none of the presenters arerendering legal advice or other professional services.This presentation is for informational purposes only and is not asubstitute for legal advice or your professional judgment.You should review applicable law in your jurisdiction and consultexperienced counsel for legal advice.3Legal Disclaimer
  4. 4. 4Payroll Card Action Group• Action Group established to focus on the opportunities andchallenges of payroll cards• Participating members representing Issuing Banks, ProgramManagers, Card Associations, Processors, Attorneys,Employers• Focus is solely on Payroll Cards as a component of electronicwage payment
  5. 5. The Payroll Card Action Group Mission5• To Advocate, Educate, Protect and Promote Payroll Cardadoption• Provide a fact-based voice to government, employers, mediaand consumers• To be the Trusted Advisor of the Paycard Industry viacontinued awareness, monitoring and reporting of Federal &State Legislative initiatives as well as facilitating efforts toclarify and defend our best practices• To be the recognized gathering coordination point for theindustry
  6. 6. Accomplishments6• Voice of the consumer initiative• Marketing studies• Best Practices Document
  8. 8. Introduction to Electronic Wage Payment8• The “Old Standard”– Pay Checks– Direct Deposit• The “New Norm”– Direct Deposit– Payroll Card
  9. 9. What are Payroll Cards?9• A practical and cost-effective method to pay employeeselectronically• A way for employees to access wages 24 hours via ATMs, over-the counter cash withdrawals and convenience checks• A way for employees to spend wages at PIN and Association-branded signature-based transaction locations and on theInternet• A way for employees to eliminate check-cashing fees, waitingfor paychecks to arrive in the mail, and other payday burdens
  10. 10. Key Requirements10• Free and Clear Access to funds– ATM– OTC– Checks– Personal Money Orders• Regulation E– Dispute resolution process– Statement availability• Annual notifications• Escheatment
  11. 11. 11Key Requirements• Disclosures– Front of Card– Back of Card– Materials– Website– Cardholder Agreements
  12. 12. Payroll Cards vs. GPR12
  13. 13. Payroll Cards vs. GPR13
  14. 14. Payroll Cards vs. GPR14
  16. 16. Issuer, Program Manager - Benefits16• Cardholder and Client Value• Inclusive• Durable• Well-known customers• Brand association• Recurring revenue streams– Product leverage
  17. 17. 17Hourly EmployeeMay work two jobs to makeends meet. Needs to save timeand avoid check cashing fees.Young EmployeeHas after school and summerjobs. Needs an easy way toaccess money, spend onlineand in stores - just like anadult.New ImmigrantNo credit record anduncomfortable with financialinstitutions. Needs to keepmoney safe and makepurchases.Payroll cards provide a solution for the varying needs of the underserved segmentProfessional AdultWell compensated. Had priorcredit issues but wants tofunction in the mainstream.The Underserved Segment
  18. 18. 18Employer’s Perspective• Motivation for Implementation of a Payroll Card Program• Known Benefits• Unexpected Benefits
  19. 19. 19Employer Motivation• Cost-savings – less expensive than checks• Security and safety• Assisting the underserved• Increased efficiencies• Ability to pay same-day• Turnover• Escheatment• Disaster recovery
  20. 20. 20Known Benefits• Safety• Electronic pay – faster and more secure• Efficient• Fit culture of company and employee base• Cost-effective
  21. 21. 21Unexpected Benefits• Significantly increased electronic pay participation• Ease of program management and administration• Flexibility of services and fee structure• Employees earnestly accepted
  22. 22. 22Employer Benefits• Cost-savings - Reduces costs associated with issuing,delivering, replacing and reconciling paper paychecks• Protection - Reduces duplicate check fraud• Security - Provides safe and efficient electronic delivery ofpayroll funds• Process Improvements – Transfers escheatment liability to thefinancial institution that actually holds the employees funds
  23. 23. 23Employer Benefits• Disaster Recovery Planning - Eliminates issues associated withemployee payment following a disabling event that forcesoffice closures• Environmental Improvement Programs - Enables companiesto enhance “green” initiatives by eliminating paper processes• Improved Benefits Program - Allows every employee safe andimmediate access to their payroll -- not just those with a bankaccount• Adoption of Direct Deposit – Increases awareness andutilization of direct deposit across all employees throughincreased communication of payroll options
  24. 24. 24• Each year, as checks travel through the payment cycle, they:– Use more than 674 million gallons of fuel– Add 3.6 million tons of CO2 to the environmentPaper check and wagestatement production• Deforestation• Paper production• PrintingDistribution andtransportation• Raw paper distribution• Distribution to hiring locations employees collecting paywhen not scheduled to work• Waste pickup and processingCheck clearing process • Transportation• Processing of checks via bank and Federal Reserve• Waste pickup and processingWaste • Paper check / wage statements thrown away in landfills• Electricity requirements• GasolineDirect Deposit drastically decreases an employer’s carbon footprintEmployer Benefits – Going Green
  25. 25. 25• Businesses can save $2.87 to $3.15 per transaction by usingDirect Deposit instead of checks1• Increased productivity– An average of 8.5 - 24 hours of productivity is lost per employeeper year cashing / depositing paychecks2– Estimated $3-$5 billion loss in productivity annually2Example Annual Cost Savings Using Direct Deposit Instead of Paper ChecksCost Savings per Check $3.00Paid Employees 5,400Annual Paper Check Cost Savings: Bi-Weekly$3.00 cost savings x 5,400 employees x 26 checks$421,2001National Automated Clearing House Association 20102NACHA - The Electronic Payments AssociationEmployer Benefits – Cost Savings
  26. 26. 26Employee Benefits• Ease of use• Options available for retrieving pay• Online access and bill pay capability• Safety and security• Special programs• Ability to have a savings account or account for child• Portability
  27. 27. 27Employee Benefits• Cost-savings - Eliminates check-cashing fees and costs associated withbill payment (e.g., money order purchases, postage, travel expenses,etc.)• Money Management - Provides employees a better way to managetheir money and track spending• Safety - Reduces the need to carry large amounts of cash• Protection – Reg E protects cardholders against unauthorizedpurchases• Acceptance - The card is welcome everywhere “Association” debitcards are accepted• Convenience - Makes wages safely and immediately available onpayday• Faster Access to Pay - Eliminates delays caused by mail delivery• Prestige - Brings employees into the “mainstream” of society
  28. 28. • Incur higher costs of approximately2.5% of each paycheck• Check cashing fees• Money orders• Transfer fees• Subject to increased risk of theftand financial loss due to employeecarrying a large amount of cash• Turned down for loans due to pooror no credit history• Face limited options for cashingchecks• Transportation costs28Sources: Federal Reserve & McKinsey QuarterlyUnderserved - Challenges
  29. 29. 29• It is expensive for low income consumers to have a traditionalbank account and use cash• Prepaid card with direct deposit is an extremely cost effectiveoption Average Annual Cost of Ownership*$168$322$340Prepared Cardwith Direct DepositBasic BankChecking AccountCash*Source: Bretton Woods, Inc., March 2012Underserved - Costs
  30. 30. 30Two key findings quoted below:The study found the pay card is more cost effective than receiving a paper check, let alonechecking accounts. Annual averages: pay card $83; general purpose reloadable prepaid card$185; cash based lifestyle $256, low balance checking $273. (see chart next page)Bretton Wood 2011 Payroll Card Study
  31. 31. • Termination Pay – FinalPayment• Weather or other31The traditional distribution of paper checks requires 1) the paper check to be deliveredphysically and 2) the employee to travel to the delivery point. Natural disasters or personalchallenges could prevent an employee from accessing their paper payroll check.Employee Benefits – Immediate Payment
  32. 32. 32• Less potential for counterfeitor stolen checks, alteredamounts, and forgedsignatures• 1.2 million fraudulent checksenter the banking systemdaily• Electronic payments reducesexposure to identity theftEmployee Fraud Prevention
  34. 34. 34Payroll Card Product History• Product developed with the employer in mind• Primary product focus:– Employer tools– Regulations– Fees• Market mostly a level playing field with above
  35. 35. 35Growth of Paycards• 20% CAGR expected through 2016• Payroll cards about 30% of total prepaid market• Tipping point (cards vs. checks) in early 2015
  36. 36. 36Source: Aite Group. Feb 2013 Impact Note: “U.S. Payroll Card Programs: Paving the Path for New Revenue”Payroll Card Up, Checks Down
  37. 37. 37Source: Aite Group. Feb 2013 Impact Note: “U.S. Payroll Card Programs: Paving the Path for New Revenue”Payroll Card Loads
  38. 38. 38Payroll Card FeaturesTransaction Types• Signature, PIN, ATM transactions• ACH Credits/Debits• Convenience ChecksFeatures• Online Account Center• Bill Pay• Customer Service (IVR and Live Agent)• SMS alert on account balances and deposits• Account-to-Account Transfers (P2P)• FDIC Insurance
  39. 39. • Arizona• Colorado• Delaware• Florida• Kansas• Maine• Maryland• Michigan• Minnesota• Nevada• New Hampshire• New Jersey• North Dakota• Oklahoma• Oregon• Tennessee• Utah• Vermont• Virginia• West Virginia 39More States Recognize Payroll Cards in theirStatutes or Regulations
  40. 40. COMPLIANCE41
  41. 41. 42Compliance Issues• Wage and Hour Requirements• Common State Law Requirements• Banking Laws
  42. 42. 43Wage and Hour Requirements• Federal Wage and Hour Law– The Fair Labor Standards Act• State Wage and Hour Law– 20 states have addressed payroll cards in their statutes or regulations– Most of the remaining states have issued enforcement positions onpayroll cards
  43. 43. 44Common State Law Requirements• Full and Free Access to Wages• Employee Consent• Disclosure of Terms and Conditions– Including Fees• Employee Ownership of Funds• Compliance with State Paystub Requirements
  44. 44. AKHIOHWACAVAMIGAKSIA PAWVDEMSORSDMOWIMNKYSCFLNCUTAZNDNM OKTNNEWYLAIL INARVTNYCOALMTIDNVTXMDMENJDCMARICTNHState Approach to Paperless Pay█ Paperless Pay Permitted Unclear Treatment of Payroll Cards█ Partial Paperless Pay █ Paper Paycheck Option RequiredVoluntary
  45. 45. 46Banking Laws• Regulation E• The Durbin Amendment• Bank Secrecy Act• FDIC Insurance
  46. 46. 47Regulation E• Compulsory Use Provision• Periodic Statements– Flexibility for Payroll Cards• Error Resolution Requirements• Disclosure Requirements
  47. 47. 48The Durbin Amendment• Establishes a cap on interchange fees• Many feared that Durbin would impact payroll card programsby:– Decreasing functionality– Increasing cost to employers– Increasing cost to employees• Post-Durbin Observations
  48. 48. 49The Bank Secrecy Act• The Prepaid Access Rule• Customer Identification Programs– Reliance on I-9 Verification– Recent Department of Justice Letter
  49. 49. 50FDIC Insurance• General Counsel Opinion No. 8• State Law Requirements
  51. 51. 52The Future of Prepaid Cards
  52. 52. • Value prop shifts from employer to employee No longer just about cost Employer views the card as a benefit, not just a requirement for payroll• Better user experience: Customer Touch Points (Account Center, Mobile, Messaging) Customer Service Portability• Better features: Money Management Mobile Applications Remote Deposit Capture Savings Rewards53What’s Next: The Cardholder
  53. 53. QUESTIONS?54