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Grow Your Business Finances

What Is a Paycard?

What is a paycard?
Credit: goir/Shutterstock

Some businesses provide employees with the option of receiving their wages through either a paycheck or direct deposit. However, more businesses are switching to paycards, which can save employers (and employees) money in the long run.

A paycard is a prepaid card offered by an employer to pay employees' net wages. Once an employer deposits funds into the employee's account, the employee can then use the paycard to purchase items, withdraw cash and pay bills. Paycards also eliminate the need for paper paychecks.

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A 2017 study by Aite Group revealed that $42 billion in gross dollar volume was loaded onto 5.9 million active paycards. The use of the paycard is expected to grow to $60 billion, and 8.4 million active paycards are projected to be used by 2022.

Employers cannot require employees to use one; however, for employees, there are distinct  advantages to using a paycard, including:

  • No check-cashing fees
  • Access to ATMs (which accept paycards just like any other prepaid debit card)
  • Immediate access to wages

Employees who don't have bank accounts can get their wages on a paycard, which is helpful, because they aren't subject to minimum balance requirements, like they would be if they had a checking or savings account.

Employees who have bank accounts can also benefit from a paycard – there are no monthly fees, bounced check fees or overdraft consequences. A paycard functions as a prepaid card until the amount on the card is depleted. Additional wages may be electronically transferred onto the card and added to the remaining balance.

Paycards offer benefits to employers as well. The American Paycard Association states that using paycards is 80 percent less expensive than paying for check-cashing services. According to Consumer Action, employers can save around $2 per employee when transferring funds electronically versus on paper.

The advantages of paycards for employers include:

  • Reduced or eliminated bank service fees
  • No stop-payment fees for lost or stolen paychecks
  • Minimal exposure to paycheck fraud
  • Decreased cost (you're no longer using paper paychecks)

Implementing a paycard program takes only a few weeks. According to Consumer Action, initial setup involves providing card kits to employees and training employees and employers on how the program works.

Vendors currently participating in the paycard program include:

  • ADP Aline
  • BB&T
  • Comdata
  • Global Cash Card
  • Money Network
  • Rapid Paycard
  • Skylight Financial Netspend
  • SOLE
  • US Bank Focus

Some vendors, like SOLE, have apps (for iPhones and Androids) that allow employees to link their card to the app and have more control over how they manage their funds. Employees can log in, review their account history (spending, wages), transfer money from their paycard to another account, and perform other tasks.

The American Paycard Association outlines compliance issues state by state on its website. Both the vendor and the financial institution issuing the paycards are responsible for complying with laws and regulations, including Regulation E, which requires full disclosure of any fees charged to employees associated with use of the paycard.

Currently, most states require that employees be compensated for their full wages without a processing fee deducted from their paycheck. This is another advantage for paycard holders as some check-cashing services charge fees that, depending on the service, can be as high as 10 percent of the check's value.

Additional reporting by Nicole-Meade Franklin