Corporate Prepaid Cards: From Paper To Plastic
With innovative benefits for both employee and employer, corporate disbursements via prepaid cards have flourished over the past seven years in the US. In other parts of the world, there is a growing interest in globally accepted corporate prepaid card solutions. This could very well bring an end to paper forms of corporate payouts, such as cheque, cash and voucher.
Among the various applications of prepaid cards – such as insurance, gaming and travel – prepaid card programmes for the corporate environment have high strategic importance and high usage potential. Prepaid cards thus present an excellent prospect for payroll specific companies as well as numerous other companies with a medium to large number of staff (e.g. construction, healthcare, agricultural and retail).
Prepaid cards have immediate and significant uses in payroll, incentives payouts, benefit payments and transportation services. In any of these categories, prepaid cards alleviate the need to disburse cash or cheques, which is a big expense and administrative concern for a number of businesses.
We have barely scratched the surface of the potential for these products globally. I expect to see a dramatic increase in the use of prepaid cards as a replacement to cheques and cash in 2008. For example, Altair is receiving growing interest from companies that have realised their workforce would benefit from direct deposit on a prepaid card.
It is estimated that employers save up to 75% of cheque processing expenses through issuing prepaid payroll cards to employees. According to Cards International, payroll cards are aimed primarily at unbanked employees consisting of some 12-15 million households in the US alone. In the US, 1.8 million workers are estimated to be using payroll cards instead of pay cheques. Boston-based consultancy, Aite Group, says US payroll card use is expected to grow to US$27.1bn in spending by 2009.
Prepaid payroll cards serve many markets, principally migrant workers, the under-served and unbanked. Under-served individuals will usually have access to a bank account, although typically this would have severely limited functionality, such as restricted ATM or point of sale (POS) access or no ATM acceptance at all. A prepaid card however offers the full functionality of a scheme branded (MasterCard/Visa) bankcard. Additionally, prepaid card applicants do not require credit history in order to apply for a card, and applicants only need to supply know your customer (KYC) information, to prove photographic or residential address of the applicant. In the case of corporate expense and payroll cards, an employer’s records could be used as verification of this information. Within the UK, each employer must confirm the identity of their workforce.
For the employer, the cards provide the opportunity to cut costs on payment processing. This is especially true in those industries where significant numbers of cheques are produced and distributed. By providing a prepaid card, the employer is able to load that card with the employee’s wages within minutes, efficiently and cost effectively. One simple secure file transfer can pay thousands of employees at the same time. Prepaid card programmes can provide businesses with a transparent and manageable audit trail for employee expenses.
The employees receive the funds on a card rather than having to cash a cheque and it gives them access to shopping on the Internet or through the traditional retail environment. Cardholders do not need to carry cash around. For the non-banked, this solution removes the inconvenience and cost of exchanging cheques for cash, while providing the benefits of a debit card such as ATM withdrawals, purchases at the point of sale, bill payments and access to the online world of payments.
Multi-functionality can easily be added to prepaid payroll card programmes, integrating the functionality of personal spend cards, travel cards and MoneyShare cards, etc. MoneyShare, a dual-card global money remittance product, is particularly useful for migrant workers. The product enables the primary cardholder to share funds with secondary cardholders quickly, conveniently and at a fraction of the price of traditional money transfer. The cards issued in prepaid payroll card programmes can also include functionality to enable staff incentives or agent loyalty programmes on the cards.
A company can pre-allocate funds to be loaded on a prepaid card (such as a travel and expenses card), based on the time away from the office. The product is thus ideal for companies with staff that frequently travel on business or attends corporate events – funds are easily controlled by the business.
Card programmes can also be used to bring employee expenses under control. Technology now exists that can enable businesses to apply advanced controls to manage their staff commercial spend on the prepaid cards, resulting in a precise mandate for how, where and when staff can use business funds.
The cards enable employers to closely control an infinite number of business issued prepaid cards through a real-time online interface and a central control account. An employer can opt to restrict certain merchant categories within their programme, this tends to be merchants such as gambling and adult content merchants. The business owner can monitor each cardholder’s purchases, which removes the likelihood of unwarranted spend and significantly reduces the opportunity for fraud to occur against the account.
By utilising this enhanced functionality, employers can reduce the potential for rogue spend on the cards; decrease the potential for fraud and negate the need for use of cash, cheques and other outdated forms of payment.
In the expense card scenario, a prepaid card programme can also significantly reduce the amount of time spent by accounts staff on checking the accuracy of expense claims (as this is done at source) and expense claim enquiries. Employers may also find that they can negotiate better deals with suppliers using the accurate aggregated information they can capture.
Payroll cards are used as an alternative to cash or cheques where employees do not have a bank account. Upon enrolment, the employee will receive an embossed re-loadable prepaid card. Each pay period the employee’s pay is automatically deposited into their individual card account. Funds earned by employees are automatically loaded onto the card and available on payday. Employees can then use their prepaid card globally to obtain cash from ATMs or pay for goods and services at retailers or online.
The system works by issuing enrolled employees with a payroll card, which can be loaded via several means, and is linked to an account into which the employer deposits money. Employees then use the card as they would a debit card linked to a personal account.
Cards are also used where employers have a large number of part time staff:
Payroll prepaid cards are rapidly growing in popularity in emerging markets where there is a lack of traditional banking relationships. Employers find prepaid payroll cards attractive due to the reduced costs resulting from moving employees from paper-based systems to electronic systems.