Given the state of the economy, many companies are looking for ways to cut operating costs, while simultaneously increasing employee morale. Sound like an HR nightmare? It needn't be. There is an easy and cost-effective solution that accomplishes both of these goals: the pay card.

The pay card of today is an effective and useful financial tool for employees. By using one of these cards, employees enjoy the benefits of direct deposit through a routing and account number provided with the card without having to open a bank account. It's like having a "walking bank account. Employees also can make purchases and get cash back at retail stores, use ATMs, shop online, pay bills, transfer funds - anything they could do with a regular debit or credit card.

The cards are particularly useful for the more than 73 million people who are unbanked or "underbanked in the U.S. The majority of these individuals have a job, but they do not have a traditional banking relationship. This may be due to a number of reasons including poor credit, avoiding bounced check and monthly bank fees, transient lifestyle and cultural perception of banks.

Pay cards are a good way to bring people into the "financial mainstream for the first time or help them return after they have fallen on hard times.

"If we can help individuals and families climb the ladder of economic success - our communities prosper and our entire country benefits, said U.S. Treasurer Anna Escobedo Cabral at the Eastern Regional Conference on Reaching Unbanked People late last year. "Becoming a part of the financial mainstream is the first step on that ladder.

In October 2007, the Mercator Advisory Group estimated that there were approximately 3 million pay cards issued in 2007 and projected an increase to 4 million in 2009.


Employer Savings

The American Payroll Association (APA) and the U.S. Office of the Comptroller of the Currency state that the cost to print and deliver a payroll check is between $1 and $2, not including any fees to expedite delivery. To estimate your potential savings with pay cards, determine the number of associates not participating in direct deposit and multiply by $2, then multiply by the number of pay periods per year. That's how much you could potentially be saving by using pay cards.

This number may or may not seem like much, but consider these additional costs that occur each pay day:

" The cost of distributing your paychecks (US Postal Service, overnight delivery, courier service or other)?
" The cost of employee time to manually distribute the paychecks once received at their final destination?
" The cost of employees leaving the worksite to pick up and/or cash their paychecks at check casher facilities?
" The cost of canceling and reissuing lost or stolen checks, including any shipping fees?

Now, the amount of cost savings by using pay cards has probably increased exponentially, as has employee productivity.


Good News for Employees

In today's climate, rarely does an opportunity present itself when HR gets to bring good news. Well, with pay cards you do.

For the unbanked, cashing a pay check can be very expensive. Depending on the state, check cashers charge a percentage of the check (generally 2 to 5 percent), but the fees don't stop there. How do your employees pay the rent? Their utilities? Car payment? Insurance? By purchasing money orders and wiring money at an additional cost. An employee with a take home pay of $425 per week, paying a minimal 2 percent check cashing fee and paying $1 per money order, spends approximately $490 per year in check cashing and money order fees. That's more than one pay check.

A recent study by Matt Fellowes and Mia Mabanta of the The Brookings Institution found that moderate- and lower-income households pay more than $8 billion in fees to non-bank check cashing and short-term loan providers to meet their basic financial services needs.

"Those fees are collected from 48,082 non-bank establishments, which include approximately 26,000 businesses that charge an estimated average of $40 per payroll check to cash a check from typical unbanked households with full-time workers, according to the study.

Depending on the pay card program you select, there will be a small monthly fee. This fee can be paid by either the employer or by the employee. Generally, there is also a fee for using ATMs. However, most programs provide a free "cash over purchase at retail outlets. A network branded (Discover Network, MasterCard or Visa ) pay card can also be used to pay bills online or over the phone. That's a savings of $391 for the year. It's also a month of groceries for a family, or two new tires, or school lunch for a child for a year.


Corporate Buy-In

As with any new program, an organization must determine where a new project fits into its overall strategic plan. Once the priority is determined, an anticipated success rate can be set. The higher the priority for a project, the higher the success rate will be. A high priority project will come with a strong message from your executive and senior level management teams, thus ensuring a higher rate of success. In addition to Human Resources, tap into the resources available from in-house marketing and/or communications departments to promote the benefit of pay cards to your associates. Basically, you have to have buy-in from the top down. Subject Matter Experts are also a key factor in program success. This individual or group of individuals can answer questions from accounting to how to read an online cardholder statement.


Next Steps

Where do you find a pay card provider? An excellent resource is the American Payroll Association (APA) at www.americanpayroll.org. Their website offers a "Paycard Portal and a side-by-side comparison of Paycard Providers. Additionally, the APA hosts an annual tradeshow where many of these providers exhibit. This is an excellent opportunity to gather information and compare pay card programs.

When evaluating a provider it is important to consider not only your company's bottom line, but that of your associates. It's no good if the business model of your selected provider "nickels and dimes your associates for every transaction associated with his or her pay card in order to support their business model. Some features that you should consider for your unbanked associates:


" Type of pay card
    o ATM use only (doesn't have a Discover Network, MasterCard or Visa logo on the front of the pay card)
    o Network Branded (Discover Network, MasterCard or Visa logo appears on the front of the pay card)

" Fees (if applicable)
    o What items are charged as a fee to the employer? To the employee?
    o What is the amount of the fee? 
    o Frequency of the fee?

" Customer Service
    o What are the hours of operation?
    o Are multiple languages available?
    o Do they offer a live person, automated phone system or Internet access (Live Chat or Instant Messaging)?
    o Are there any fees charged for using Customer Service?

" Misc.
    o Can other sources of income be added to the pay card (second job, cash for day labor activities, etc.)?
    o Is the pay card "portable?

" Implementation Resources
    o How do they handle implementation and internal training?
        - What is the cost of the program to implement?
        -  What is the cost of the plastic?

    o What internal marketing materials are provided?
        -  What are they?
        -  What languages are available?
        -  Can they be customized with your company logo?

o What type of ongoing support is provided?


The Small Print

Don't forget to review the regulations in any state you pay employees in. There isn't a nationwide regulation or ruling pertaining to pay cards. In some state's employers can mandate direct deposit programs, yet in others, they can't. Some states require employees have free access to their pay, others don't. Employees in some states can't be charged a monthly fee, yet, in other states they can. The bottom line is that pay cards are not a one size fits all and you need to be aware of the law in your state and how it applies to you.

From the cost savings and convenience to the security and efficiency, pay cards are a "win-win for both the employer and the employee.



Clare Morgan is a vice president at Tampa, Fla.-based nFinanSe Inc. (www.nfinanse.com), the innovative financial services company and provider of stored value and prepaid card solutions, which owns and operates the nFinanSe Network, a secure, reliable, point of sale (POS) and PC-based software platform. The standardized network connects retail merchants with multiple stored value prepaid card processors and issuing banks throughout the United States.