This post by Todd Nuttall, CEO of Better ATM Services, first appeared on www.atmmarketplace.com.
The debate over the use of GPRs for payroll is more hype than reality. What are we really talking about here?
When it comes down to it, it’s an old song. The problematic behavior of a few is being used as a broad brush to paint a picture that is far from accurate.
What is the real fear? The fear is that payroll cards will be used by employers and financial services providers to bilk more money out of employee income. The hyperbole would have you believe that this translates to everything from “disadvantaging the disadvantaged” to ripping off the average employee.
What is the logic tree? As we all know, payroll traditionally has been completed through direct deposits to checking and savings accounts or through a physical check. In the case of a check, you would incur significant expense in cashing it if you did not have a traditional checking or savings account.
The other side of the equation is the employer. Checks used for payroll are a labor- and cost-intensive process. Just think how many checks, in general, get lost, go uncashed — creating a clearing and escheatment issue— or worse yet, get stolen. So, are we really saying payroll checks are the consumers’ best friend?
What about the obvious? Electronic payments eliminate these risks, problems, and costs for employers. The money used to pay the employee leaves the employer’s bank account and goes directly into the employee’s bank account or payroll card almost immediately. What could be simpler?
Fees? We all pay for our banking services in one way or another either through fees or by sharing financial returns on our savings or investments with our service institution.
Payroll cards must support many complex services while processing transactions with merchants and service providers through a vast array of networks. The cardholder fees typically associated with payroll cards are not inordinately larger than those associated with checking accounts — and for many people are much less.
And when you talk about one of the large markets for prepaids — the unbanked — the cost of cashing a check can vary considerably based on the person’s history, location, and overall risk to say nothing of what many of these vendors tack on for significant profit margins.
Perhaps this could be solved simply by mandating that everyone must have a government authorized checking account to which payroll is deposited. Problem solved!
The government already requires us to have a government tax account to which the employer must deposit the anticipated taxes on all earnings. So, what’s the difference?
Better yet, just raise taxes to 100 percent of earnings across the board and all employers can use the existing tax depository accounts for all money handling … Problem solved again! See, there are lots of ways to address this bank fee issue.
Sound absurd? So has much of the hype surrounding GPRs.
Alternative conclusion: While we as a free people believe in choice, there are pressures that often drive us to products that succeed while others fail. For example, I don’t know of any employers who issue payroll in cash anymore.
Why? Because the old way of doing things isn’t always the best. The huge risk, burden, and hassle to everyone involved, including the employee, has driven employers to better options.
A former auditor, I once participated in an investigation of a payroll department in a Central American corporate center, which had been siphoning money during the payroll process because payroll was done weekly in cash — creating numerous openings for theft, fraud and danger.
Most employers would prefer to have everyone on direct deposit. This would simplify the entire payroll process. But, given that the world is rarely that simple, the next best alternative is direct deposit to a reloadable payment instrument that can be used for the vast majority of consumer transactions — namely, a payroll card.
Just as evolving technology has given way to everything from advances in medical treatments to smart phones and flat screen TVs, standing still on payments doesn’t make sense. And justifying a stance against progress with fear-laden arguments that ignore much of the reality around emerging products seems short-sighted at best.
Forcing a check option is akin to forcing employers to also offer a cash option. Where do you draw the line and whom are we protecting when all is said done?
That is always the question in all aspects of life.