Payroll cards provide a means for paying a consumer's wages or other compensation in an access device with the functionality of a debit card. The card is loaded with the customer's payroll information on a magnetic strip or microchip and can be used to access an account that the employer establishes with a financial institution. The employee can use the payroll card to withdraw the funds at an ATM and to make POS purchases without a banking relationship. Some payroll cards may offer features such as convenience checks and electronic bill payment. Payroll cards are often marketed to employers as a cost-effective means of providing wages to employees who lack a traditional banking relationship. Their low-cost structure and debit-like functionality make them attractive as an alternative to direct deposit to more transient consumers. The Federal Reserve Board has amended its Regulation E to apply to payroll cards.
Payroll cards are supported by the Visa and MasterCard networks and can be used in every way that other branded cards are used. Employers are increasingly adopting payroll cards, and the growth is expected to continue because of their cost advantage to employers and financial institutions. Third-party service providers have sought opportunities in this market and may be engaged for card issuance, processing transactions made on the payroll card account, providing a range of program administration services for financial institutions or employers, and offering customer services to cardholders. Figure 7 illustrates the various relationships in an open-system payroll card program.
Figure 7: Open-system payroll card program
Figure 8: Stored value card product designed for corporate payrolls
Figure 8 describes a stored value card used in a payroll program. A stored value processor works with a financial institution to establish a payroll card program (Step 1). The issuer (financial institution) manages the card issuance and transaction processing. The financial institution offers the payroll card services to employers (Step 2). Either the financial institution or the employer distributes the payroll cards to employees (Step 3). The employer tells the financial institution the amount to credit to each employee's payroll card account (Step 4). On the pay date, the financial institution posts the funds to the employees' accounts (Step 5), allowing them to make purchases at any merchant that accepts the card's branding, e.g., Visa, MasterCard (Step 6).
Prepaid (Stored Value) Cards
General Spending Reloadable Cards