"It is impossible for ideas to compete in the marketplace if no forum for
  their presentation is provided or available."           Thomas Mann, 1896

---

PRIVATE LABEL DEBIT CARDS

Author: Dr. Robert J. Houchin
Contributed by PSCA, Inc.

What Could Look Better To Your Employees Than A Paycheck?  

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.

Benefits of a Multi-Use Card

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

• Reduced Costs:  The payroll card helps reduce expenses associated with paper payroll processing,  exception and special payment checks such as when employees are on vacation or out of the office,  lost and stolen checks including stop payment fees,  fraudulent cashing of duplicate checks,  check printing,  storing of tendered checks,  retention and reconciliation costs.  It can actually pay commission revenue to the employer based on sharing with the employer a portion of the transaction fees charged.  How many banks are presently paying you to deposit your employee's payroll payments with them?  Alternatively, the employer may choose to pass this savings back to the employees in the form of a reduction in the fees charged to the card holder.   Can you imagine Payroll Processing as a Profit Center rather than an Expense?  
  
  

• Enhanced Efficiency:  The payroll card can be used in a variety of ways such as prepaying or reimbursing business expenses,  making bonus and award payments, issuing final payment and disaster recovery—all without writing a check.  
  
  

• Increased Employee Productivity and Satisfaction:   As with direct deposit, trips to the bank or check cashing stores are eliminated and employees get their pay on payday,  no matter where they are.  Some employees spend an average of three workdays per year just going to the bank to deposit their paper payroll checks, frequently on the employer's time.  Once the card is funded, employees can get cash from an ATM,  cash back from certain merchants and make normal debit card purchases at over 21 million retail locations worldwide.  They will be able to arrange for automatic bill payments,  card-to-card funds transfers,  transfer to bank accounts,  make purchases online,  reserve a hotel room,  make an airline reservation,  even rent a car.  No more check cashing fees to pay or asking relatives to cash their checks for them.  
  
  

• Employees Like Direct Deposit:  Ninety-Seven Percent of the more than 62 Million employees presently using direct deposit are very satisfied with it.  More than Fifty-Four Percent of US payrolls are currently paid by direct deposit.  Recently,  US Sprint made direct deposit payroll mandatory for its 88,000 employees.  The US Treasury is the largest user of stored value card technology in North America.

What, Exactly, Is a Private Label Debit Card?

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.

What they are:

• Debit Card - enabling the cardholder to make purchases at business  establishments that accept debit cards.  It is not a credit card, purchases are limited to the value of the card account at the time.  Cardholder will enter a PIN (Personal Identification Number).  Printed on the back of the card are the logos of the debit networks identities where the card may be used (Star, Cirrus, Maestro etc.).  
  
  

• Debit Card with MasterCard or Visa Hologram - may be used at point of sale with either Signature or PIN.  Can be used anywhere either MasterCard or Visa are accepted.  
  
  

• ATM Card - may be used at automated teller machines to obtain cash.  With the associated network capability of the cards there are over 1 Million ATM locations worldwide where a cardholder may withdraw cash from the card.  
  
  

• Funds Transfer Card - may be used to transfer account values (funds) to another card.  Employees may request additional cards which they may use with other family members or relatives.  Each card has its own PIN, therefore, giving the employee control.  This will save the employee who routinely sends money to family members overseas or students at college significant expense when compared to the costs incurred at Western Union and MoneyGram methods as well as the time involved in the purchase and shipping of these forms of funds transfer.  This is all done instantly via toll free customer service lines,  following the prompts to transfer the desired amounts to other cards.  Presently over $41 Billion annually is sent to relatives and family outside the United States.  Over $9 Billion annually from California to Mexico alone.  The Nilson Report forecasts that this will grow to 280 million transactions worth $108 Billion by 2005.  
  
  

• Electronic Bill Payments - enables the card holder with the ability to arrange for many routine bills to be paid electronically to service providers.  No longer having to get a money order and deliver or mail payments to the utility or telephone company as an example.  Presently, over 975 million money orders purchased annually.

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.

And The Survey Said!!

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

Are you experiencing a cost savings?

                    *   63%  Yes

If Yes,  How Much?

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

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

In your opinion, what is the value of direct deposit to your company?

                    *   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)

User Objections:

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.

Multiple Cards In One!  

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

If you can think of it, Private Label Debit Cards can do it!

Establishing Direct Deposit and Process

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.

The Bottom Line

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?"