B2B Payments

Payroll Cards Get A Jump-Start On Faster Payments

When it comes to faster payments, B2B payments aren’t necessarily chomping at the bit for the capability. According to NACHA statistics on Same Day ACH, nearly 2 million debits were made in just the first 11 days of service, accounting for a combined $1.5 billion in funds.

The vast majority of that volume and value, however, was in the form of business-to-consumer payments, while B2B transactions accounted for just 6 percent of this activity.

There is one exception to B2B payments’ aversion to speed: payroll.

Employers see potential in faster payments technologies to remedy key points of friction in payroll, like fixing payroll errors. Data from The Workforce Institute at Kronos recently found that most employees say they have experienced some type of problem with their paycheck, whether that be getting paid too little or receiving their wages late.

Faster payments are “the No. 1 request” for clients of payroll company Wagepoint, its CEO, Shrad Rao, told PYMNTS last year. “We cannot wait for real-time payments to come into effect in the U.S. and Canada.”

Faster ACH payments don’t necessarily work for everyone, however. Two billion people around the world don’t have a bank account, including 15.6 million in the U.S. Combined with the 51.1 million Americans considered underbanked, according to Global Findex data reported in Forbes, that makes for a lot of employees who won’t benefit from faster direct deposits via ACH.

“There is an enormous percentage of American employees [who] are legally working here who do not have a direct deposit vehicle,” Mary Kittrell-Kinkaid, CEO of Kittrell Paycard, told PYMNTS. “One of the biggest pushbacks to going 100 percent paperless was that these employees did not have a way to receive a traditional direct deposit.”

That’s where the payroll card comes in, she said. Not only can the card act as a vehicle for direct deposit, it can also facilitate faster payroll payouts.

Kittrell Paycard recently announced the integration of InstantWage, a mechanism for payroll card users to access their earned wages before payday. The solution, Kittrell-Kinkaid explained, enables workers to receive funds in real time that come loaded onto their card (the company supports wire and ACH transfer into paycard accounts, as well as real-time card loading with Letter of Credit authorization).

Darin Petty, president of CardPlatforms, a Kittrell Paycard partner, told PYMNTS that this is a better alternative to payday loans for employees who cannot wait until payday to access cash.

That’s a lot of people too. According to Even CEO Jon Schlossberg, 70 percent of Americans live paycheck to paycheck. The cash crunch, mixed with the number of employees without a traditional bank, are certainly drivers of the payday loan industry, worth more than $35 billion in 2016, according to the Center for Financial Services Innovation (CFSI) and reports in The Economist.

Petty said faster payroll funds allow employees to avoid the costs of payday loans (the CFSI calculated about $30 billion in revenues were generated by fees alone for the payday loan industry in 2016).

“This is access to what they’ve already earned ahead of time,” he said. “So, it’s not a loan.”

He added that the fee charged by Kittrell is a “fraction” of those charged by payday lending companies.

While employees will certainly warm to the idea of having the option to access wages more quickly, reducing paper in the payroll department may not be enough to convince workers that they should integrate this offering. But Kittrell-Kinkaid explained that enhancing payroll and financial services to employees is a top priority this year.

“In employment today, the No. 1 issue is finding talent; he who has the talent wins,” she said. “Offering this tool will provide employers an advantage in recruiting and retaining talent.”

Indeed, research published by SunTrust earlier this month found attracting and retaining talent is the top challenge for employees in 2018, with nearly 50 percent of small- and medium-sized enterprises identifying this hurdle as their largest for the year.

Payroll cards earned a bit of controversy in recent years, largely around the fees that some payroll card providers charge for basic activity, like withdrawing funds or making purchases; they’ve been the subject of recent legal action among several state-level governments in the U.S.

But as excessive fees become a thing of the past in the payroll card industry, the market is becoming the target of FinServ innovation that Petty said rivals that of banks’ — meaning the millions of underbanked and unbanked workers in the U.S. may see a reduction in some of their largest cash management challenges.

“We are just like a traditional direct deposit,” he said. “We become the employee’s bank account — without the restrictions the banks have of rolling out new features in a slow manner. Payroll cards today have more features and functionality than most banks have. It’s evolving, and it’s allowing us to innovate a lot faster than traditional banks.”


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.