Deep Dive: How Prepaid Cards Support Faster, More Accessible Employee Compensation

Companies with global workforces need to overcome numerous challenges to quickly and easily pay their employees. Providing prompt compensation is critical because workers’ loyalty could be damaged if frictions affect their paychecks. Employees’ payment preferences and access to financial tools can vary, however.

Firms recognize that not all employees can receive payments into bank accounts, and these companies must therefore provide secure, convenient alternatives. Employers have commonly relied on paper checks to compensate unbanked employees, but many businesses are finding this method more difficult to use during the COVID-19 pandemic. Accounts payable (AP) staff can no longer simply hand checks to employees at their offices and instead must mail them to their homes, trusting what can be a slow-moving and strained postal system to deliver these payments on time. Issuing physical checks every two weeks can also challenge employers that cannot safely allow AP staff on site to use check printers.

Such factors could drive companies worldwide to seek the utility and flexibility of delivering payroll via prepaid cards, and this month’s Deep Dive examines companies’ growing interest in these tools.

Paying unbanked workers

Organizations whose employees hail from countries where many consumers do not have bank accounts must be prepared to conveniently deliver their earnings without depending on the involvement of FIs. This could be especially important for businesses that employ workers in nations like Bangladesh, Colombia, Ethiopia, Indonesia, Nigeria and Pakistan, in which at least half of adults lacked bank accounts in 2017.

Alternative payroll methods are also important in countries like the U.S., where a small but still significant portion of the workforce exists outside the traditional financial sector. One survey found that 6.5 percent of American households were unbanked, for example. These employees therefore cannot receive direct deposits and may have to accept paper checks — as well as the fees necessary to cash them — unless they are paid using newer methods like payroll cards. Employers can utilize these prepaid debit cards to provide funds to their workers and remotely reload them each payday, and cardholders can use these tools to make payments or collect cash from ATMs, typically without incurring fees.

Employers may also find it easier and cheaper to issue funds via payroll cards rather than checks because the former method spares them from printing and mailing physical documents. Organizations that leverage payroll cards also do not need to collect workers’ direct deposit details, thus avoiding the costs and effort involved in storing such sensitive information.

These tools also appear to be receiving more corporate attention. A 2018 survey polled 158 U.S.-based organizations, 41.2 percent of which paid employees in multiple countries while 58.8 percent compensated workers in just one. It found that just 2 percent of respondents offered payroll cards in 2014, but that this figure had risen to 28.5 percent four years later. Larger companies showed even more interest in these solutions: 34 percent of companies with 1,000 or more employees offered payroll cards compared to just 17 percent of smaller businesses. These cards were thus already making headway before the COVID- 19 crisis, but the pandemic’s associated restrictions and economic downturn could push these solutions into greater use.

Speeding up payroll

Businesses around the globe are witnessing increased demands to accelerate their payroll processes rather than offering weekly, biweekly or monthly compensation. On-demand and same-day payroll options are often deemed critical to gig workers, who need to quickly collect earnings to maintain their cash flow, but there could be growing pressure to extend these conveniences to full-time employees as well. Wage workers who have seen their hours reduced or their schedules fluctuate during the pandemic could find it difficult to wait for set paydays to receive compensation. Instant access to funds, however, could help these employees better meet their financial obligations despite these hurdles.

These use cases could spur more interest in such offerings as organizations look to swiftly issue funds onto virtual or physical payroll cards by using systems like card rails. A June survey of 750 organizations around the world found that of the 7 percent that offered on-demand pay, 16 percent made funds available via payroll debit cards.

Many companies today rely on workers based in numerous countries, and engaging these employees requires sensitivity to their payment needs. Businesses must consider how quickly domestic and overseas workers need to receive their earnings as well as the financial tools they use to do so. Organizations that are experiencing rising demand for fast employee payments could find payroll cards playing an important role in their approaches.