The financial world of payments, banking, and money management is changing. A rapidly evolving technology landscape, new payments service providers, the desire to bank and manage payments via mobile devices, and increased efforts toward financial inclusion for the unbanked and underbanked are increasing demand for mobile-friendly options for managing money. According to the Fair Labor Standards Act (FLSA), employees should have options for how they receive their pay, and paycards are a convenient, enticing method. There are many reasons staffing agencies should offer a paycard to their talent. It is a convenient alternative to traditional banks and paychecks that address changing needs, while also reducing payroll costs for staffing and recruiting agencies.
WHAT IS A PAYCARD?
A paycard (a.k.a. pay card, payroll card) is a pre-paid, stored value card that agencies use to pay their talent for the receipt of wages and other compensation. Every payday, payroll loads the card with the employee’s wages for that pay period. The employee can then use the paycard to withdraw cash from a bank teller or ATM, pay bills online or in person, receive cash back from point-of-sale transactions, and make everyday purchases simply and conveniently.
According to an industry estimate from payments consulting firm Aite Group there were 3.1 million active payroll cards in the United States in 2010, with $20.9 billion loaded onto those active cards. By 2017, both numbers doubled to an estimated 5.9 million active cards with $42 billion in load value. By 2022, those figures are expected to jump to 8.4 million and $60 billion, respectively, demonstrating the increasing demand for a paycard option. Here are five reasons why you should meet this demand and offer a paycard to your temporary workforce.
Reasons Staffing Agencies Should Offer a Paycard
1. Financial Inclusion for the Unbanked and Underbanked
Research from the Federal Deposit Insurance Corporation (FDIC) shows that approximately 25% of Americans were either unbanked or underbanked as of 2017, and roughly three out of four unbanked households cited either not having enough money to keep an account open due to minimum balance requirements or high banking fees for not having a banking account. When asked about their motivational barriers to banking, these households cited a lack of money (43%), high banking fees (32%), and a general distrust of banks (30%). The respondents who had closed an account said they did so due to high overdraft fees (29%), no longer having direct deposit with their jobs (27%), and minimum balance requirements (22%).
Offering payroll cards can mitigate or eliminate these issues. Paycards provide unbanked and underbanked workers with increased access to the financial system, as well as the benefits of safety, convenience, faster payments, and ease of use. A paycard offering can end the frustrating financial cycle, creating an incentive for employees to continue working for your firm.
2. Accessibility and the Changing Landscape of Brick & Mortar Banks
In addition to financial inclusion and accessibility, physical accessibility to banks is an increasing issue. The availability of brick and mortar bank branches is quickly shifting. In lower-income areas, bank branches are closing far faster than new ones are opening. Between 2014 and 2018, 1,915 more bank branches were closed than opened in lower-income neighborhoods, according to a new report from Bloomberg. This can require a significant drive or bus ride just to cash a check for an employee on payday.
With a paycard, employees receive their money directly to the card, eliminating a trip to the bank to deposit a check. They can also use their paycard at various ATM locations, making accessibility more convenient. The quick adoption, remote payment distribution, and ease of use proves to be a major benefit of payroll cards.
3. Budgeting & Money Management
Using a paycard can be a unique, yet effective way to save money for card holders. Using a paycard in tandem with a standard bank account lets talent separate money to be used for different purposes. For example, employees can reserve one account for necessities and another for day-to-day spending. Having funds in separate accounts allows users to budget more easily and save for special occasions or emergencies.
Another really helpful use of a paycard is the ability to provide others with funds automatically. The bank can assign a second card to give to another family member to distribute allowances or share funds.
Another reason staffing agencies should offer a paycard to talent is increased security. Employees can easily misplace or damage a physical check, causing headaches, security risks, and costly charges for them and your firm. Furthermore, reconciling uncashed checks can be a painful process for your back office team. Paper checks also contain personal information that is a major security risk if it falls into the wrong hands.
Paycards provide fast and secure distribution of funds. This results in less stress and increased satisfaction for both the employee and your payroll team. No more lost checks and reissues! A paycard can eliminate the stress and risks while providing talent with a modernized financial solution.
5. Generational Differences & Lifestyle Choices
Millennials and Gen Z are not using banks like previous generations and prefer other options. Younger generations think entering a bank and standing in line to deposit a check is time-consuming, antiquated, and unnecessary. The younger generations rarely have a reason to write a check or even know how to do so. For many, checks are as equally retro as the rotary phone and not in a vintage, charming sort of way.
A common trait among Gen Z and Millennials is the need for choice. They expect banking options personalized to their preferences, like other services they interact with on a daily basis. Paired with a growing awareness about the importance of financial health and wellbeing among younger generations, payroll cards are the perfect solution to modernize your payroll and provide flexibility. Paycards offer an improved experience and more freedom for how talent bank, make payments, and manage their money.
With the various reasons staffing agencies should offer a paycard in mind, it is time to research options! The staffing and recruiting industry is unique. Payroll and compliance is complicated, so look for a provider with specific experience in the staffing and recruiting industry. Avionté CHANGE is the first staffing paycard with an incentive program for employees, making it a great place to start in your journey to modernize payments.