Cards popular in the U.S., where people are less likely to have bank accounts
Paying people for the work they do can take on many forms. Canadians are familiar with direct deposit, cheques and cold hard cash, but what about paycards?
Paycards are a paperless way to distribute payroll to employees who do not have traditional bank accounts. Here’s how they work: The pay amount is loaded onto a prepaid card. The card can then be used like a debit or credit card to make ATM withdrawals, complete point of sale purchases or make online, mobile or telephone purchases. Paycards work with near field communication (NFC) as the underlying technology. This same NFC technology enables secure, contactless payment via smartphones
Cards popular in U.S.
The popularity of paycard use in the United States is mainly due to the fact about 17 million adult U.S. citizens don’t have a bank account for direct deposit or payroll cheque deposit purposes, according to the 2009 FDIC National Survey of Unbanked and Underbanked Households.
The situation is quite different in Canada, where 99.5 per cent of Canadians have an account with a financial institution, according to numbers released earlier this year by the Canadian Bankers Association.
Why would employers — in Canada or otherwise — consider using paycards to pay people? If direct deposit is not an option, paycards benefit employers by lowering the internal costs of producing and distributing traditional payroll cheques.
In Canada, 10 per cent of Ceridian customers still run paper cheques. Paycards provide reduced bank processing and cheque handling fees, decrease the likelihood of cheque fraud, minimize cheque printing costs, reduce lost/stolen cheque replacement costs and provide the ability to electronically transmit payroll to employees stationed at remote locations.
In the case of payroll paper cheque use in Canada, paycards present a viable option for potential operational and payroll savings.
Benefits to employees
Paycards also offer numerous benefits to employees when compared to paper cheques. Paycards reduce or eliminate cheque cashing fees. They offer 24-hour access to funds via ATMs and make money transfers easily available to families. They also offer the ability to make purchases using credit card networks, reduce the need to carry large sums of cash, and allow for funds to be withdrawn as needed. When travelling outside Canada, the card can be used wherever the credit card brand is accepted.
Other than offering employers more ways to regularly reach and pay those few Canadians who are “unbanked,” paycards could also be used to fulfill certain pay circumstances such as advances on expenses or bonus payouts.
Remote workers, such as fleet staff, may also benefit from the mobile paycard option if they don’t have a bank account or regular access to ATM.
Also, in some parts of Canada paycards could help employers meet labour standards. For example, if an employee is terminated in British Columbia, labour laws dictate an employer must give the employee their final payment within 48 hours of notifying them of their termination.
A paycard in this instance would significantly reduce the amount of administration and expense associated with cutting a cheque, which is currently the go-to solution.
Mobile wallets
As the trend of mobile wallets gets set to take off, paycards easily become another payment card option — alongside debit cards and credit cards — that can be embedded into a smartphone, giving consumers and businesses more purchase and payment options than ever before. Currently, with eight million Canadians carrying smartphones, according to comScore data from November 2011, mobile wallets seem inevitable.
The market for paycards in Canada may be small compared to the U.S., however there is a case to be made for paycards. Paycards in Canada would simply provide more options for employers and their payroll department to reach and compensate Canadians appropriately. And, as the trend towards mobile adoption continues to grow, paycards have the potential to become a part of future mobile payment solutions.
Sandra Sutton is director of product strategy at Ceridian Canada. She can be reached at [email protected] or visit www.ceridian.ca for more information.
