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What Are and Why Paycards?

by Mark Smith
Vice President of Client Services
PayStar Financial

Paycards are bank debit cards that are linked directly to payroll deposits. These specialized debit cards can be restricted or enhanced, depending on the vendor. Paycards fall into three basic classes. First, there are branded paycards – Visa / MasterCard. These paycards are issued by Visa / MasterCard partner banks. Each bank has their own process and fee schedule. These paycards are also called “signature” cards because they can be used without a PIN. Second, there are vendor branded bank account paycards. These paycards are issued under specific vendor logos. Each paycard is a true FDIC insured bank account that has restrictions, such as no personal checks. The paycard processes are established by the vendor as are the fees. All transactions are PIN verified. Third, there are vendor branded, stored value paycards. These paycards are issued under specific vendor logos, with their own processes and fee schedules. All transactions are PIN verified. These paycards accounts are sub accounts of a master bank account that is owned by the employer or a third party. Individual paycard accounts are not FDIC insured.

Paycards are becoming popular for many reasons. There are changes going on within the economy that make the move from paper checks to electronic payment more compelling each day. There are many changes within the banking business that make it harder for employees to get payroll checks cashed. Fraudulent payroll checks are increasing and represent a large expense to banks. Banks respond by making it more difficult to get a payroll check cashed. More and more banks are moving to charge a fee to cash a payroll check.

Merchants are recognizing that they can achieve significant savings by accepting electronic payments (credit or debit) rather than checks. Merchants receive credit immediately and do not have the expense of preparing a deposit or paying a bank to process their deposit. Merchants greatly prefer PIN based debit cards because they can frequently process that transaction at a lower fee. Merchants frequently give cash back with PIN based debit cards because again they lower their cost of depositing cash and they get credit to their account immediately. Each week merchants are installing the hardware, which is a key pad, to permit them to accept PIN based debit cards.

Employers are looking for ways to be able to improve the reliability of payroll delivery and save money on payroll distribution. By offering paycards or paycards in conjunction with direct deposit, employers can greatly reduce or eliminate paper check printing and distribution.

Paycards allow employers to offer electronic payment to all employees. Paycards can be issued without any approval, which means there is universal acceptance. Paycards are simple to use so the training process is not complex. Employees can use their paycards to make withdrawals at ATM’s, make purchases at participating merchants or use some of the special paycard features such as bank drafts or ACH transfers. Paycards are safer than checks or cash, which employees like. The fees that are associated with paycard transactions are often less than employees pay in monthly bank account service charges or for check cashing fees. Based on volume, paycards can be a low or no cost expense to employers, which means that all of the check printing, distribution and overhead cost become true savings to the company. Paycard funding can be done using standard ACH transmission, so no system modifications are required to implement. Paycard enrollment is recorded in payroll systems as though they are standard direct deposit records – bank routing code, account number and checking account.

About the Author

Mark Smith joined PayStar early in 2002, after doing private paycard consulting. He had previously worked for Sears, Roebuck and Co as Payroll Manager. At Sears Mark was responsible for paycard vendor review and selection as Sears chose and implemented a paycard solution. Mark has given presentations on paycards and paycard implementations at APA Annual Congress and APA Best Practices Conferences in 2001 and 2002.

About PayStar Financial

PayStar provides the Money Network paycard in a joint venture with Concord EFS. Concord EFS owns the premier PIN based networks in the country with access to over 500,000 ATM’s throughout the nation. The Money Network PIN based debit payroll card is accepted at millions of merchant locations across the nation. EFS National Bank is owned by Concord EFS, thereby providing a one-stop solution in payroll debit cards (Money Network), network processing and financial institution settlement.

The PayStar paycard has been in existence since 1993 and is backed by a trained staff in both implementation services and a customer service center that is available 24/7. is a free online resource featuring a compilation of research, collaboration and web tools for use by payroll professionals and more including information about payroll tax articles, federal tax information and state tax information.

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