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Direct Deposit Payroll Debit Cards
Opportunities abound in the coming years for ISOs

by Ken Sturm

   The prepaid debit card has multiple personalities, but in a good way.
   In the right setting, the prepaid debit card is a payroll card, a salesperson commission card, a company expense card, a student spending card and more.
   You’d be surprised at some of the statistics we’ve seen. Out of the 162 million adult Americans, almost 60 million are FICO ( Fair Isaac Company) score challenged. This can be broken down into two major subsets. Approximately 37 million people have “thin” FICO files, incomplete data on date of birth, home address and other important demographic data. Another 22 million simply have poor FICO scores (sub 620) and can’t receive credit cards or lines of credit for various reasons including a lack of a bank account, or lack of an open revolving line of credit. The statistic that in excess of 20 million Americans earn from $18-$22,000 annually without owning a bank account is widely published. When we look at the credit card solicitation industry statistic that of all the mailed pre-approved credit card offers only 2% are accepted, it leads to one conclusion–the sub prime market is huge and untapped for card issuance.
   So that is part of the case that can be made for the issuance of retail, prepaid debit cards. But it is the very same card product that can be utilized for payroll; these same un-banked Americans are gainfully employed, without the possibility of receiving a traditional credit card.
   Let’s assume for the moment that the payroll card can be either a regional/nationwide debit card or a “flagged” bankcard product, with capabilities at certain ATM devices, or points- of-sale with or without a bankcard brand. The concept is a plastic card replacing a paper check. Here the model is relatively simple–ISO’s purchase individual personalized cards from the fulfillment bureau, supply them to employers at a nominal charge and reap the benefits of the transactional revenue based cardholder use. Employers will continue paying their state and federal taxes either by their own checks, or ACH sweeps by a payroll/card issuing service. We are proposing a hybrid to today’s traditional full service payroll company, tax, filing and form processing handled by one entity, personalized cards fulfilled and loaded with net employee value by another.
   The benefits for employers are numerous: the end to scrambling to sign checks, cashing checks at the store or office level, robust reporting and no more wasted time for employees waiting on check cashing lines. Considering the number of Americans who send money overseas via Western Union or Postal Money orders, the efficient card to card transfer mechanism inherent in any prepaid card platform will be a welcome benefit to ISO offices.
   For every check that an employer does not have to cut, they’ll be saving anywhere from .50 to $1.25 per check per employee which can add up to huge yearly savings. We recommend that employers not make the card mandatory, but rather an option to those employees that could look to the debit card (which many employees might not currently possess) as one of prestige and convenience. In this scenario, some employees may continue receiving paper checks or direct deposit while other employees may embrace the plastic card product. For each employee that an employer puts onto a prepaid card program, their administrate costs should plummet.
   Network marketing groups and other commission-based sales organizations routinely have hundreds, if not thousands of active representatives for whom they have to process checks once, and sometimes twice per month. The prepaid debit card is once again, superbly up to the task of aiding in administration, adding prestige to a company and offsetting costs for organizations. These other organizations have more latitude as it relates to issuing money due to salespeople.
   Card funding is handled through easy to use batch interfaces in tandem with ACH functions. Usually the card issuing entity will have a variety of custom and co-branding options available for larger organizations which can be tailored to a company’s needs. These custom or co-branded cards take a while longer to deploy than existing card stock and usually have far higher initial launch costs as well, but some companies may opt for this as a truly personalized payment solution.

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   For the ISO that has been in the bankcard industry during the past five years, and weathered the various interchange storms with profits eroding residuals and merchants purchasing terminals on e-Bay, the landscape has been littered with ISO’s losing their sales agents as it has been becoming harder and harder for Independents to keep their lights on. With the continual consolidation amongst the largest processors buying regional ISO’s and regular merchant churn, the future is spotty for traditional bankcard acquiring, unless you already have a large and well established merchant portfolio. Even then, continued growth will be tough for companies that don’t have product depth.
   But the fact is, the prepaid debit card product will change these scenarios dramatically. The prepaid card issuers that deploy compensation plans that allow for an aggressive residual mentality will allow sales organizations to attract quality sales agents and keep the agents that they have. The card issuer’s back-end is probably specifically geared to multiple levels of compensation management based on card usage and revenue “buckets”. Once again, real-time reporting provides a comfort level for all parties concerned which should be inherent to the system.
   If you’re reading this, we feel that you are at the onset of the second phase of transaction processing’s next high growth cycle. Similar to the moment in time in 1981 when the first sale of a Zon Jr. by Verifone to a retailer ushered in a new dynamic industry of electronic merchant transactions, residuals and equipment leasing, you are at the forefront of the next 20 years of similar, unbridled growth with debit card issuance. Payroll cards will be a huge part of the future most assuredly. n