For many years, the only people who needed an alternative to direct deposit were those who had limited access to traditional banking services. This is no longer the case. The demand for alternatives to direct deposit is on the rise across all sectors of the economy. Many businesses are now expected to offer various methods of payment to their workers.
If you’re a business owner searching for checking account alternatives for your employees, you’re not alone. Here are a few solutions we’ve seen gain the most traction recently.
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Digital payments through platforms like PayPal have opened up new payment methods to businesses and individuals. These platforms allow you and your employees to hook up your bank accounts, so you can transfer money to them per project or pay period.
With PayPal, you decide whether to connect your bank account or a particular card, and your workers have the same choice. In other words, each of you is in control of where you withdraw or receive money from and whom you are sending it to or accepting it from as reimbursements.
Regardless of how you decide to pay your employees, you should be crystal clear on knowing exactly how payroll works. Without the fundamental knowledge understanding payroll processing, you won’t be able to make an informed decision on which payment options to offer.
While paper checks have been used for quite some time, mobile check deposits are making them more convenient. Employees no longer have to drive to the bank to deposit their paper checks; they can take a photo of the check on their mobile devices and deposit it using their bank’s mobile app. This may be the best bet for a business with very few employees.
For nonbankers, this option is more complicated. Banks are not obligated to cash checks for someone who does not have an account. You also risk check fraud with this method.
Online banks have become widely accepted, and even traditional banking institutions have online portals to make accessing funds and services easier. As the internet has evolved and security measures have become more reliable, digital banking alternatives have increasingly emerged.
Simple offers consumers an entirely online banking experience. Funds are held by Compass Bank, and they are FDIC-insured just as with a traditional bank. The company offers its account holders a Visa card, cross-platform mobile apps and a sleek web interface that facilitates a seamless banking experience from any digital platform.
When you transition to an online bank, you receive all of the benefits offered by a traditional bank, such as bill pay, ATM access, direct deposit and savings assistance. One key difference is that the services from Simple are more widely available to individuals who have limited or poor banking history.
PayPal is probably the most widely recognized alternative to direct deposits. The company accepts payments from a wide variety of sources, and while it has the capability to transfer your funds to a bank account, it can also be used as a bank.
With PayPal, it is possible to access funds from a PayPal debit card as soon as they are received. In addition to taking electronic deposits, the PayPal app allows users to cash checks and have them instantly credited to their PayPal account.
In 2018, PayPal made a move to increase its ability to function as a full-service digital bank. The company allows its customers to have their entire paychecks, government payments and tax refunds directly deposited to their PayPal Prepaid Card.
When you sign up for PayPal, you must choose a personal or business account. As the business owner, you’ll choose the business account, while your employees would choose the personal account.
Business accounts can then sign up for PayPal Payouts, which is a mass-pay option that allows businesses to send money to multiple people (up to 5,000) at once. You simply upload a file with your employees’ email addresses and phone numbers, then review and send your payouts.
While signing up is free, an instant transfer with an eligible linked debit card or bank account warrants a fee of 1% of the amount transferred, with a maximum fee of $10. Standard transfers are free.
Sending money funded by your PayPal Cash or PayPal Cash Plus balance or the linked bank account is also free within the U.S. If the money is coming from credit or debt, however, there is a charge of 2.9% of the amount funded, plus a fixed fee of 30 cents.
The name “Western Union” is practically synonymous with secure funds transfer. The company was established in 1851 and has adapted to changes in technology and consumer demand to evolve into a fully integrated digital platform, providing powerful alternatives for people who are not interested in working with traditional banks.
The Western Union Netspend program provides a prepaid Mastercard that can have funds added via direct deposit, Western Union money transfer transactions and transfers from traditional banks. Employees can get started by submitting their name and mailing address to receive a card in 7-10 business days. Once they receive it, they can activate it online or over the phone to confirm their identity.
Transfer fees are relatively high, but you can estimate yours beforehand.
TransferWise is the product of modern businessmen who were frustrated with the cumbersome nature of traditional banking institutions. The company was developed in Estonia and is based in the United Kingdom. It is widely considered one of the top options for individuals or businesses with numerous international clients, employees, or business partners.
With one of TransferWise’s borderless accounts, it is possible to receive direct deposits from people located in a wide variety of countries, including Australia, European countries using the euro, the U.K., Austria, Belgium, the United Arab Emirates, Norway, the Philippines, Hungary, Hong Kong, Greece, Latvia and Slovakia.
It is important to have a policy in place for how you will respond to requests for a payroll advance. If you do receive a request from an employee for an advance on their paycheck, be sure you know how that payment will be made and if it needs to be on a paper check or if it can be one of these other alternative payment options.
Prepaid debit cards
Prepaid debit cards are an excellent option for individuals who want to distance themselves completely from banking. The method is similar to direct deposit, but it exists as an option for workers without bank accounts. Because these debit cards are manufactured by major payment processors like Visa, they can typically be used anywhere that accepts electronic payment. They can also be reloaded or used at an ATM for cash back.
Depending on an employee’s location, there are state laws and regulations you should familiarize yourself with before choosing this method. This option is convenient, instantly usable and cost-efficient, with less risk of fraud – but there may be fees for employees to check their balance or withdraw money.
When considering the use of paycards vs. direct deposit, it is probably a good idea to get a feel for how many employees would actually make use of this service. You want to make sure the investment in such a service is worth it.
There are numerous options available, but these are some of the most popular prepaid card options.
AccountNow was founded in 2004 and is located in San Ramon, California. Its service offerings include a low-cost solution for individuals and small business owners who want an easy way to have funds directly deposited and made accessible without the use of a traditional bank. Funds are immediately available on a Visa debit card, and the company can send out checks with the funds to make payments.
Bluebird is similar to AccountNow in functionality but is backed by American Express and Walmart. In addition to accessing the benefits available with similar prepaid debit cards – such as direct deposit, bill pay and ATM withdrawal – Bluebird account holders can add funds to their account at their local Walmart stores.
There is no reason anyone should be tied to the restrictions of traditional banking if they don’t want to be. The digital marketplace is making it easier than ever to control your finances in a way that best fits your personal and business needs. Stay tuned as we monitor which other alternatives to direct deposit gain momentum.
Rissa Ann contributed to the reporting and writing in this article.