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Free ATM access boosts payroll cards' profile
Surcharge-free ATMs may help boost acceptance of payroll cards, which show a strong growth potential. Payroll administrators like to be able to give their employees free access to their funds and ATMs are a good way to do so, say card issuers.
July 12, 2004
Payroll cards, in which employee wages are distributed via a stored value card rather than a paper check or electronic deposit into a traditional banking account, are a fast-growing business for card issuers.
About 2.2 million of the cards are in use, double the number in circulation a year ago, according to Financial Insights. That number will double by 2006, predicted the Massachusetts market research firm.
The potential seems large, based on results of a late 2002 survey administered by the American Payroll Association. Fewer than 4 percent of the survey's 3,380 respondents used payroll cards -- but about half of them planned to consider doing so in the next 12 months.
Employee benefit and cost reduction were the two main factors driving interest in the cards, both mentioned by more than 2,000 respondents (who were allowed to name multiple factors). Fifty-three percent of respondents cited employee acceptance as their main concern in implementing a payroll card program.
Offering payroll cardholders access to their funds at surcharge-free ATMs may help boost acceptance of the cards. Two card providers, Genpass Inc. and FSV Payment Systems, are making surcharge-free ATM access a key part of their payroll card programs.
Genpass/MoneyPass
Holders of the Genpass PayCard can withdraw funds from 6,000 ATMs in the MoneyPassnetwork, which is owned and operated by Genpass. "We don't want our cardholders to have to pay a surcharge; all of our PayCards have the MoneyPass logo," said Bipin Shah, Genpass' chief executive.
Shah said the combination is popular with companies like Petro Express, a c-store chain with 54 stores in North and South Carolina. The chain's employees who receive salaries via the PayCard can use it at MoneyPass ATMs located at Petro Express. Other PayCard employers, including Hard Rock Cafes and the Rebel Oil c-store chain, also have MoneyPass ATMs at their locations.
In addition to offering ATM access to their own employees as a benefit, Shah said retailers with MoneyPass ATMs experience increased foot traffic, which translates into higher transaction volumes and store sales. ATM transactions have increased as much as fourfold at some MoneyPass locations, Shah said, and many of them are conducted by new customers.
"You're more than making up in interchange what you give up in surcharge," he said, "and the customers are maybe going to buy a bottle of water or a cup of coffee while they're there."
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"Every ad you see for Bank of America talks about all of their ATMs. This (MoneyPass membership) allows me to say the same thing without all of the expense," said Mike Epps, executive vice president of $1.7 billion American State Bank, which owns 36 ATMs. "By giving my customers access to these ATMs, I can compete with the big boys."
Like Shah, Bill Connell, general manager of ATM Merchant Systems, a Las Vegas-based ISO with about 100 machines in the MoneyPass program, said that most site owners realize it makes sense to give up some surcharge revenue in exchange for increased transactions.
"We've got some of the MoneyPass machines at a casino," Connell said. "Foot traffic and branding are two buzzwords they really understand."
FSV Payment Systems/Fiserv/Allpoint
FSV is taking a similar tactic to Genpass through a card marketing partnership with Fiserv Inc., which owns a minority interest in Allpoint, a national surcharge-free network.
"We're seeing a big acceleration in the cards," said Ben Psillas, president of Allpoint, which recently inked deals with JP Morgan Chase and Bank One to offer ATM access to holders of their prepaid cards, Chase's E-funds and Bank One's Direct Card. "Surcharge-free ATMs offer a way to alleviate one of employers' key concerns, the fees associated with using the cards."
Allpoint charges card issuers a fee based on their card base. In exchange, their cardholders can use 25,000 ATMs in retail locations across the United States without paying a surcharge. The ATMs are operated by E*Trade Access and Cardtronics.
Card issuers, including big banks like Bank of America and Wells Fargo, have adopted a variety of policies concerning fees for payroll card usage.
Wells Fargo's program allows for one free cash withdrawal at one of the bank's ATMs per pay period. After that, it's a $1 fee for every withdrawal at Wells Fargo's ATMs, and a $2 fee at any other ATMs. The ATM owner will also likely charge a fee. Wells Fargo also charges a $1 fee for PIN-based debit transactions; signature-based transactions are free.
Some 3,000 of U-Haul's 17,000 employees use cards issued by BofA. They get one free ATM withdrawal per week at BofA ATMs and pay no fees for point-of-sale debit transactions. After the first year, they also pay a $1.50 monthly service charge.
U-Haul, which has offered the cards for two years, was one of the first large national companies to use them. The company says it saves $500,000 annually by offering payroll cards and direct deposit - but no paper checks -- to its employees.
Eric Miller, president of FSV Payment Systems, said that smaller employees -- those with a workforce of less than 1,000 -- will drive much of the future growth of the payroll card. To appeal to those companies, FSV and Fiserv recently introduced a program called Payroll Delivered Quick, or PDQ. FSV and Fiserv are marketing the program to Fiserv's FI clients.
Clients receive either MasterCard- or Visa-branded cards and can opt for both PIN and signature debit or PIN-based debit only, Miller said. The PIN-based cards can be issued "almost instantly" and cost less.
Surcharge-free ATMs like those in the Allpoint network are one way to comply with regulations in four states -- Arizona, Kentucky, Tennessee and South Carolina -- that require free initial access to payroll funds. "(Free access) is not a legal requirement elsewhere, but it is important to payroll administrators in the 46 other states," Miller said.
It's particularly important in light of the fact that most initial withdrawals on payroll cards are made at ATMs, he added. "In the first 30 to 45 days a person has this card, he's probably going to go to an ATM and pull out all of his money to make sure it's there. After the first couple of months, though, cardholders tend to incorporate it into their lifestyles and use it more at the point-of-sale."
Psillas said many payroll cardholders, who often do not have bank accounts, prefer using ATMs because it's easier to conduct balance inquiries and see how much money remains on their cards. "We're finding that their ATM usage patterns are similar to bank customers; they generally make four to six transactions a month."
Fiserv and FSV offer cardholders several other methods of collecting their pay, including vouchers dispensed by Coinstar kiosks that can be redeemed for cash at Coinstar locations and money orders that can be purchased at U.S. Postal Service locations.
For small FIs, Miller said, the PDQ program offers not only a value-added service for its commercial accounts but also a way to reach cardholders who may not have traditional banking relationships.
"The card is a bridge over the digital divide," he said. "It allows them to market other fee-based services to customers they normally wouldn't be able to touch."
Both MoneyPass and Allpoint are looking to expand their ATM locations.
Shah said Genpass hopes to attract national chains, preferably those with 24-hour operations. "That would make it easier to advertise the program," he said.
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