A Long-Awaited Innovation In Payroll

When it comes to payroll, not much has happened in terms of industry innovation since the invention of direct deposit. Cachet Financial Services wants to change that, and has just introduced its Select Mobile Money program for payroll management. That means businesses and employees can manage paychecks through a mobile device, and gain the benefits of direct deposit thanks to the use of a prepaid card, even for employees without traditional bank accounts.

PYMNTS spoke with Cachet Senior Vice President of Sales and Operations Hunter Wolfe about why businesses need better payroll solutions, and the friction associated with getting firms – especially SMEs – on board with cloud-based, high-tech tools.

PYMNTS: We want to talk about how Cachet just extended the Select Mobile Money program for payroll management. What does that mean, and which types of businesses can best benefit from a mobile payroll solution?

HW: Mobile Money is our prepaid platform; it’s our mobile money management piece, but it’s intrinsically tied to a prepaid card program. As we’ve watched prepaid explode in the market, you start to see adoption pick up and how firms are using prepaid cards in different ways. We started look at, well, what’s the best way to leverage what we’ve got here? In the past we’ve seen prepaid cards be a money management tool, or a travel card, or an expense management tool. We really identified an opportunity working with our issuing bank to leverage this for payroll. That’s really what were doing here with Select Mobile Money for payroll.

Where we started was to rework that platform for our financial institution partners, and sell the platform to banks and credit unions. And as we did that we had several of our financial institution partners that work with us say, “We really like this, but it’s not something that we necessarily want to offer on a wider scale. So what we think you ought to do is go directly to some of our corporate customers and provide them this service.” So we came to the market with a direct-to-company, direct-to-merchant service.

Regarding how businesses benefit, it’s really about building better relationships with their employees, reducing costs both for the employee and employer, and giving their employees access to their funds in the way that they want to have access to it. One of the key benefits – we talk a lot about it – is reducing expenses for the business. The bottom line is important for any business. You saw this years ago as companies said, “Wow, it’s really expensive for us to process a payroll check, from paying our payroll processor for using one, to delivering that check whether it’s through the mail or through somebody walking around the office with the mail cart and handing out the check every Friday, to our bank expenses associated with clearing those checks – it’s a significant expense for our business.”

Years ago, what did every employer start doing? They started saying, “hey employees, you get instant access to your funds in your bank account by letting us directly deposit it.” And that was I think one of the first revolutions in the payroll space was direct deposit. And then obviously that’s been around a long time.

But there’s a certain population of every employee base that doesn’t have a bank account and that can be for one of many reasons. We talk a lot about the under-banked and the unbanked. There’s always this stigma associated with that. But what we’ve found is there are a lot of people that aren’t in traditional banking products that are using prepaid cards and prepaid accounts in very mainstream ways that are not necessarily low income or bad credit. So you’ve got this population of employees that don’t have bank accounts, so those companies are still issuing check to those employee, and they’re still incurring the expenses of a paper check, and the employee is incurring the expenses converting that paper check into spendable funds.

[bctt tweet=”There’s always this stigma associated with the un- and under-banked”]

What we’re accomplishing here is reducing all that friction. For the employer they can now have a full direct deposit solution. They can direct deposit into the DDA [direct deposit] accounts of their employees that have bank accounts or at credit unions. But now they can also direct deposit into these prepaid accounts for the employees that don’t have those traditional banking products. I’ve seen companies that have gone completely paperless. They say, “look, we’ll continue to do your direct deposit if you’ve got that set up. But for those of you that we’re issuing checks to, we’re not going to do that anymore. If you don’t give us a bank account to direct deposit into, we’re going to issue you a prepaid payroll card.”

They’ve eliminated paper checks entirely. That’s really what this solution does. It allows a company to do that. It gives access to funds to employees immediately. They can go use the card at an ATM and take cash withdrawal and spend it just like any other credit or debit card transaction.

When it comes to going paperless, for some businesses – especially SMEs – they can be reluctant to nix the paper check. Can you give us some insight into why that might be?

HW: It’s funny, we sit around and pontificate on this often. As a company, this is just one of many solutions we offer, and we have a large customer segment, and we’re selling them a service that deals with paper checks. We have an invested interest in paper checks continuing, on one hand.

There are a lot of reasons [why businesses don’t go paperless], at least from our perspective. One is just simply the comfort level of something that’s familiar. It’s that whole, “this is how we’ve always done it” mentality. You called out a very specific segment of business, and that’s SMEs, where there’s maybe a misunderstanding that converting to more current technologies and electronic and digital technologies is more expensive. Obviously that’s not the case, but they sometimes get that impression.

That combination between, this is how we’ve always done it, and maybe the person who’s in charge of making decisions has really been in that seat for a long time and maybe hasn’t thought about what else is out there, coupled with the thought that it’s expensive to convert, that’s one segment of it.

Another big one is still this: if I’m going to mail you a check, I just bought myself a couple days, because I put that check in an envelope and it has to go through the postal service and it’s two-to-three, maybe four days before you have the check. And then you have to physically go somewhere to deposit it, or scan it through a mobile device or from your desktop scanner. For some businesses, they’re still capitalizing on that “the check is in the mail” approach. And it buys you a few days.

[bctt tweet=”Some businesses are still capitalizing on that “the check is in the mail” approach. “]

For smaller businesses, that tends to be a segment where there are cash flow issues. As it relates to paying employees, there’s a lot less resistance to going electronic and going direct deposit because that’s their employee. They want to keep them happy they want to have a good relationship with them. They rely on them. I can’t have unhappy employees or I’m going to be in trouble. If they feel they’re not getting paid quickly enough there’s going to be issues with that.

In the B2B section, I don’t know if [a reliance on paper checks] is going to change anytime soon. Still, the No. 1 way that businesses pay each other is checks. But on the payroll, side I think there’s a lot more opportunity to leverage these new platforms and technologies to take advantage of the prepaid space, to make things better for their employees. And I think that’s why businesses are going to end up converting.

Cachet knows that, whether it be quickly or slowly, businesses are beginning to adopt more digital, sophisticated payments solutions. And one of those is mobile payments. With consumers, it’s taken off – with businesses, not so much. What trends do you see in terms of businesses using a mobile device to manage their cash flow and manage payroll, and why might a mobile phone be a good solution even for companies that are a bit skeptical to use it?

HW: That’s a great question, and it’s one that we’re seeing shifts with already. One of our other segments is merchant capture and merchant deposit services. We launched a platform last year that really beefed up the mobile aspect of that, and it was the result of what we were hearing from our customers and their customers. Saying, “hey, I’m a small business owner. I’m not always in the office. I do a tremendous amount of work from my tablet or smartphone, and I need ways to be able to review and approve my check deposits, and those traditional batch deposit scenarios. But I also need a way to report, get a better overview of what’s going on with my cash flow from a depository standpoint – I need to be able to do that from a tablet or a smartphone. I don’t always have a computer available to me.”

These business owners and business leaders in these SMEs are really going mobile, and they’re not always sitting at a desk. They do need that platform. We’re looking at this across everything that we do. Earlier this year we launched our revised merchant capture platform that’s very mobile-centric. And the real power of this platform for payroll is definitely on the employee side. They get the card, the employee’s salary or pay is direct-deposited into that card, and then they’ve got this really robust mobile device that lets them access their account info and spending history. They can pull up where the nearest ATM is. There’s a mobile couponing component. We’re helping them get their money faster and offer them opportunities to save some cash as well.

Lastly, Select Mobile Money for payroll means businesses can manage their accounts and payroll systems on the cloud. Can you elaborate on what that means exactly for businesses using the solution, and how can you convince businesses that their information is going to be safe on the cloud?

HW: That’s a hot topic right now with data security, so let’s talk about that part first.

I think we’re seeing a huge trend in not even just the financial aspect of business management, but in everything that these SMEs are doing, is migrating into a cloud-based environment. There’s some level of familiarity with it. I think there’s an increasing comfort level with cloud-based services not just with things affecting their money, but with email services and document storage and data management. More and more often, when these companies are going out and securing vendors to help them with solutions for whatever it may be, there’s less of these in-house server units. Those options are really shrinking, and every aspect of business services is going to be cloud-based.

It’s an education process to understand what controls and protocols we put in place to ensure that their info is safe. With this program, because it is essentially a credit card program, we maintain full PCI [payment card industry] compliance, so their private information is securely transmitted and stored, and we subscribe to a full audit to ensure that. There’s all sorts of measures that we do to demonstrate to the business owner that says we’re doing everything that is required from an industry perspective and regulatory perspective to ensure that we’re meeting those standards.

It is a lot of education. I think that [data security] is less of a concern than it was in the past. I think as people become more comfortable with these cloud-based services it’s become a little bit more of a familiar discussion. They already know some of the terms and what to ask for and it’s a little bit more fluid. As it relates to the Select Mobile Money program, the nice thing about this for a business owner is that we’re not coming in and saying that they need to change anything about how they’re currently managing payroll. All this becomes is a mechanism to take that channel where they’re still incurring the hassle and expense and time of issuing paper checks and wiping it out. Everything else as it relates to their payroll program remains the same. That’s one of the key values to the employer.