Author: Dr. Robert J. Houchin

Sponsored by Prolific Consulting, Inc.

Private Label Debit Cards offer the convenience, speed, and safety both you and your employees will enjoy.  Instead of spending time and money handing out or mailing paper checks for employees to deposit, cash or risk losing,  now,  you may offer them the advantages of Direct Deposit Payroll even if the employee lacks a conventional bank account.

This cutting-edge electronic payment solution does not require a checking account so anyone on your payroll may sign up for it.  When you consider everything that it offers it is easy to see why this is an attractive option for employer and employee alike.

The Direct Deposit Card is an ideal way for companies to eliminate the costly and time consuming payroll check writing and reconciliation process.  Companies save an average of $1.25 per payment by using direct deposit instead of checks.   In addition,  Administration Costs are reduced by as much as 50%.   It eliminates the cost of delivering checks to employees at different locations as well as the costs of printing and the cost of the paper itself.  It eliminates the costs of lost or stolen checks and the resulting charges for stop payment and check replacement.  The FBI estimates that over 4 million payroll checks are stolen annually.

In addition to the immediate cost savings provided by direct deposit payroll programs, some Private Label Direct Deposit Payroll Cards actually Pay Commissions to the Employer from the transaction fees charged when the cards are utilized.   For the employee who requests additional cards for use by the spouse and/or children,  these commissions can become substantial and may be $20.00 a month per employee.  When added to the $5.00 monthly savings provided by the switch to direct deposit, the monthly savings per employee reaches $25.00.

For the employer, the prepaid payroll card provides all the benefits associated with direct deposit:  reduced costs,  enhanced efficiency,  increased employee productivity and satisfaction.

Private Label Debit Cards are Bank Sponsored, MasterCard Licensed, ATM/Debit (Stored Value) Cards.  They look like a credit card but they are not.  They look like a debit card but that is not what they are either.  They are not smart cards but they do act like them.

Debit card utilization is the fastest growing financial instrument worldwide.  Last year debit card transactions exceeded credit card transactions in both the United States and Canada.  The number of Direct Deposits increased by 11.6 % in 2001 from 3.3 Billion to 3.7 Billion payments.  Direct Deposit is used for payroll,  expense and travel reimbursement, pension and annuity payments, interest payments, retirement and mutual fund distributions, Social Security, veterans and other government benefits and tax refunds.  The value of these direct deposits exceeded $4 Trillion with an average of $1,195.00 per transaction.

For those employees who refuse direct deposit, what are the three most prominent reasons?

                    *   57%  Do not trust the technology

                    *   54%  Fear loss of control

                    *   50%  No Bank Account

                    *   63%  Yes

                    *   53%  Said they were saving $0.01 to $0.50 per payment

                    *   47%  Said they were saving $0.51 to $12.00 per payment

                    *   44%    Very High Value

                    *   34%    High Value

                    *   19%    Moderate Value

                    *     2%    Low Value

                    *    0.25%   Very Low Value

                   (See Links at Bottom for Entire Survey)

Virtually the only objection raised is the recurring transaction costs to the cardholder which average $10.00 to $15.00 per month with normal usage.   Education is the key to overcoming this objection.  The primary consideration in the use of the Private Label Debit Card is that the recipient is "Unbankable."  They lack conventional bank accounts and credit cards.  As such,  they are presently paying fees of 3% to 8% [average 5%] just to cash their paychecks.  A ten dollar an hour employee is spending over $1,000.00 annually [$87.00 Monthly] just to cash their weekly paycheck.   Add to this the expense of paying normal household bills [22 money orders per month] which adds another $16.00 to their monthly expenses and for those who send money overseas, an expense averaging $50.00 to $60.00 per transaction, and it is immediately apparent that the employer is actually saving the employee $1,500.00 to several thousand dollars annually by implementing Direct Deposit Payroll using Private Label Debit Card Technology.

Most people forget that the average cost of a checking account is $218.00 a year plus another $20.00 to have the checks printed.  At $238.00 a year the average checking account costs $20.00 per month.

An even more stunning comparison.  The average American has 12 credit cards at 19% interest and an $8,500.00 balance.   A monthly minimum payment of $212.50 will take 396 months [33 years] to pay off the balance and cost $36.00 per month [$14,228.50] in interest plus another $5.00 per month in annual card member fees for a total of $41.00 per month.   Private Label Debit Cards at $10.00 to $15.00 per month are 75% cheaper to utilize.

ATM Card                                  Money Transfer Card

Debit Card                                 Travel/Expense Card

Payroll Card                               Prepaid Wireless Purchase Card

Shopping Card                          Prepaid Calling Card

Benefit Card                              Allowance Card

Gift Card                                     Loyalty Card

Claims Payment Card              Online Shopping Card

The employer enters into an Agreement directly with the Processor to effect the transfer of payroll funds from the employer to the employee's Card Account.

Employer will purchase cards for each employee to receive employment compensation by direct deposit.  These may be generic (No Visa or MasterCard logo) PIN Cards or cards with the MasterCard or Visa logo.  The card account numbers are registered with the Processor and with the Sponsoring Bank in behalf of each employee.

To effect disbursement of employee payroll the employer will either one day prior to the payment date effect a wire transfer to the card depository account or three days prior to the payment date effect an ACH electronic funds transfer to the card depository account.

Employer will forward in electronic format a batch file 24 hours prior to the date of payroll processing  payment listing the names and card numbers of each employee with the specific dollar amounts to be credited to each cardholder.

Employer may elect to have pay stubs which can be uploaded from a secure web site for the employee to print out or mailed to the employee.

Employer may elect to have W-2 Forms at the end of the year which can be either uploaded from a secure web site for the employee to print out or mailed to the employee.

Every businessman has heard the axiom, "The Fastest Way to Increased Profits is to Reduce Expenses."   While it seems obvious that every dollar of reduction in costs increases profits by the same dollar amount it is also easy to overlook the true meaning of savings, which may appear to be modest at first glance.  The true value of any cost reduction program becomes readily apparent when we compare to the amount of increased production that would be required to achieve the same result.

Example:    Any business with a 4% Net will require a $25.00 increase in production to achieve a $1.00 increase in Net Income.   The exact same increase in Net Income is achieved with a $1.00 reduction in Expenses.   In these terms then a $100,000.00 reduction in Expenses is the Equivalent of a $2,500,000.00 increase in Production.    A business with 1,000 employees achieving the $25.00 per month savings previously referenced will save $300,000.00 annually.  The Equivalent of a $7,500,000.00 increase in Production.  For a business with 10,000 employees the savings would be the equivalent of a $75,000,000.00 Annual Increase in Production.

Some companies have as many individuals on pension as they have active employees.  What happens when pension benefits are also paid with Payroll Cards?

The question is not, "Will your company be using Private Label Debit Card Direct Deposit Payroll?"   The question is, "When will you begin?"

White Paper                               
http://www.americanpayroll.org/wp103.html

Pay Media Survey Results        
http://www.americanpayroll.org/new55.html

Survey History                    
http://www.americanpayroll.org/paymed01.html

Survey Project Overview   
http://www.americanpayroll.org/paymed02.html

Findings by Individual Survey Questions           
http://www.americanpayroll.org/paymedia.html

Survey Credits                   
http://www.americanpayroll.org/paymed03.html

The Guide to Successful Direct Deposit
http://www.americanpayroll.org/pubs2.html#7

For further information, contact:

Robert J. Houchin

909 941-9552

[email protected]