Payroll Card White Paper

A New Perspective on Payroll Cards:A Roadmap for Adoption

MasterCard InternationalPrepared by Intelligence & Planning and theGlobal Commercial Prepaid Group

MasterCard Proprietary & Confi dential

Information in this white paper or in any report or deliverable provided by MasterCard in connection herewith relating to the projected impact on your fi nancial performance, as well as the results that you may expect generally are estimates only. No assurances are given that any of these projections, estimates, or expectations will be achieved, or that the analysis provided is error-free. You acknowledge and agree that inaccuracies and inconsistencies may be inherent in both MasterCard’s and your data and systems, and that consequently, the analysis may itself be somewhat inaccurate or inconsistent. The information, including all forecasts, projections, or indications of fi nancial opportunities are provided to you on an “AS IS” basis for use at your own risk. MasterCard will not be responsible for any action you take as a result of this presentation, or any inaccuracies, inconsistencies, formatting errors, or omissions in this presentation.

MasterCard Proprietary & Confi dential 1

IntroductionPayroll cards represent a solution that is a “win” for all parties. Particularly in today’s economy, consumers and businesses are focused on better managing their spending. Payroll cards provide an opportunity to make every dollar go further:

• For employers—particularly those with unbanked, temporary, or part-time workers, it offers a far more effi cient and cost-effective payment solution than cutting checks;

• For employees—it provides immediate access to their income and the ability to pay bills without incurring the cost of a check-cashing fee. It acts as a payment card for store and online purchases, and offers consumers the security of not having to carry their entire pay in cash;

• For issuers—it is an additional source of annuity revenue.

Over a million U.S. companies could benefi t from payroll cards.1 Yet despite being introduced over a decade ago, payroll cards remain a niche product favored by larger companies and select industries. In fact, when a survey was done of the general business market2, only 1% of U.S. companies that could take advantage of this solution have done so. [Charts 1-2] Why not? MasterCard decided to fi nd out how prepaid payroll cards are perceived, and thendeveloped a roadmap for companies that are trying to accelerate the rollout of this product in order to realize value.

1 D&B data indicates there are approximately 1.55 million U.S. businesses with 10 or more employees. Random sampling of a stratifi ed sample of 836 companies by TNS indicates that 1.08 million of these companies pay at least some employees by methods other than direct deposit. See the Appendix for a description of the methodology.

2The Market for Payroll Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009.

General Business Market

The Market for Payrol l Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009.

39%

61%

Aware Unaware

Base = 594

Chart 1: Awareness of payroll cards is low in the general business market.

MasterCard Proprietary & Confi dential2

Three separate studies were conducted—the fi rst among the general business population, the second among members of a leading professional organization, and the third among unbanked (and underbanked) employees not paid by direct deposit today.

Taken together, the fi ndings suggest that the challenges of adoption can be overcome with a coordinated education effort of both employers and employees and they present a roadmap for those companies looking to reduce cost associated through implementing payroll applications. In short, the results reveal the following:

• Most importantly, companies see value in a payroll solution—employers interviewed indicated a high level of satisfaction with the product value proposition (for example, features and functionality). In fact 81% (of users) say they are “very satisfi ed” – and most (84%) say their expectations were met completely. [Chart 3]

General Business Market

The Market for Payroll Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009

54%

98%

1%

DirectDeposit

Checks

PayrollCards

Base = 594

*Uncertain

*Had no expectations

*Not at all

15Somewhat

84Completely

Degree to Which Program Met Expectations

3Very dissatisfied

7Somewhat dissatisfied

90Total satisfied

81Very satisfied

9Somewhat satisfied

10Total dissatisfied

% Payroll Card Users(34)

Satisfaction with Program

The Marke t for Payroll Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009

Base = 34

Chart 2: Although payroll cards have been in market for 10+ years, adoption has been slow.

Chart 3: Companies that have implemented a program are satisfi ed and feel expectations were met.


• Awareness and Education are critical to adoption—perhaps the most pointed lesson from the research is that no one in the value chain—payment card companies, issuers, or employers—was particularly successful in educating their respective audiences about the benefi ts of a payroll solution.

Key Learnings

Finding #1: More awareness is required.

Our research suggests that the most fundamental hurdle to adoption is lack of product awareness by both the employer and the employee. [Chart 4] This is particularly true among small to mid-size businesses. Within the general business market3, about four in ten non-user companies (39%) claim awareness of this solution. Awareness is much greater among mid-sized and large enterprises4, indicative of the number of small companies within the U.S. business universe. [Charts 5]

3 Defi ned as companies with at least 10 employees who do not rely exclusively on direct deposit. This universe is estimated to consist of about 1.5 million companies. The Market for Payroll Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009.

4 Defi ned as companies with annual revenues of $20-$499 million, and $500 million or greater, respectively, The Market for Payroll Cards Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009.

®

Chart 4: Hurdles to Successful Payroll Card Adoption and Enrollment


The American Payroll Association (APA), an organization of over 22,000 payroll professionals, has been at the forefront of providing education and support of its members and the industry since 1982. Research among their member base suggests that awareness and education are effective at driving adoption. This is supported by the fact that practically all its members (97%) say they are aware of payroll cards, and two in three cite the APA itself as the source of their knowledge. When compared to the general business population with an adoption of 1%, APA member adoption of payroll cards is 18%. [Chart 6]

1The Market for Payroll Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009

Base = 560

37%Small (<$20M)

84%Mid-sized ($20M-499M)

89%Large ($500+M)

By Company Size...

37%Other

45%Retail/Wholesale

38%Service

40%Manufacturing

By Industry...

Aware 39%

Unaware 61%

APA members2 General Business Market3

2 MasterCard/APA Survey November 2008 3 The Market for Payroll Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009

98%

84%

18%

DirectDeposit

Checks

PayrollCards

Base = 2,525

54%

98%

1%

DirectDeposit

Checks

PayrollCards

Base = 594

Chart 5: Large and mid-sized companies are most aware of payroll cards, as are those in retail/wholesale and manufacturing industries.1

Chart 6: Although payroll cards have been in market for 10+ years, adoption has been slow.


Professional organizations like the APA are in an ideal position to educate and inform their membership about advantageous trends in their industry. However, among those companies aware of payroll cards within the general business market, virtually none cite professional or trade associations as their source of information. Instead, they tend to identify informal sources such as colleagues and word of mouth, the Internet, potential providers, and experience from former places of employment. [Appendix 1]

The APA represents a small portion of all company personnel responsible for payroll, and its membership profi le skews to much larger fi rms than the general business market. Other mechanisms clearly need to be developed to reach the overwhelming majority of U.S. fi rms to achieve a greater awareness and understanding of payroll cards.

MasterCard believes that a partnership among the APA, corporations and not-for-profi t organizations could be helpful in better communication of the value of payroll.

Finding #2: Education on product features and functions is required.

Depth of understanding of the product’s features and functions among those employers aware is often limited, with a number of factual misperceptions fairly prevalent. Within the broader business arena, only 17% of those aware consider themselves “very familiar” with this solution. Among this group of employers, lack of familiarity is the most common explanation for non-usage, followed by a perceived lack of need and satisfaction with current solutions, which in most cases means checks. Yet payroll cards coexist with payroll checks at most user companies, enabling these enterprises to apply different solutions to different classes of employees.

In addition, only a fraction of aware companies (8%) say they are currently considering the payroll card solution, while another 13% say they are gathering information. Even among APA member companies, less than half of non-payroll card users (39%) are considering or gathering information on this solution. [Chart 7]

APA members1 General Business Market2

1 MasterCard/APA Survey November 2008 2 The Market for Payroll Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 20093 Those aware of payroll cards but do not currently use them

18%

21%

48%

NowConsidering

Gathering Info

NeverConsidered

Base = 2,077

8%

13%

76%

NowConsidering

Gathering Info

NeverConsidered

Base = 303 informednon-users3

Chart 7: Many companies have never even considered payroll cards for their organizations.


The reasons offered for lack of interest suggest a basic lack of understanding of the benefi ts as well as the nature or applicability of payroll cards. One in three APA members cite “insuffi cient number of employees” to adopt this card, while over a quarter raise concerns about “employee misuse or corporate liability” and 15% mention “legal concerns.” [Chart 8] Employers, comparing payroll cards to checks, tend to see checks as being superior in most areas, including ease of replacement and cost to employee and employer.

Among APA members, fully one quarter (24%) admit they didn’t understand the costs or benefi ts to employers or employees. While a third cited lack of support from senior management, this may well refl ect the absence of a strong case made by payroll personnel to senior management as opposed to real opposition.

6All/most employees ondirect deposit

13Don’t understand howthe card works

14Insufficient resources to implement

15Legal concerns

33Insufficient number of employees

32Senior management not soldon idea

28Concerned about employee misuse/liability

24 Don’t understand costs/benefits for employer or employees

Total %(1420)

2008 APA/MasterCard SurveyWill Not/Not Considering

Chart 8: A key reason cited for not considering payroll cards is a lack of understanding of card functions and benefi ts.


Finding #3: Perceptions are not reality!

It appears that underlying much of the resistance to payroll cards is the belief on the part of employers that their employees would not welcome this solution. While relatively few aware non-users cite this as a reason for not using payroll cards, this assumption is embedded in their favoring checks over cards. For some reason, employers are convinced that checks are preferred and trusted by employees, and many believe they are more convenient for non-English speaking employees. [Appendix II]

Among APA members, nearly half say employers continue to pay employees by check instead of other means because of employee preference. [Appendix III] According to the research, they also believe that the comfort and familiarity employees have with checks are reasons they often choose to be paid by check.

Employees tell us something very different. The qualitative research conducted by MasterCard, while not defi nitive, strongly suggests that employees immediately develop an affi nity for the payroll card once they understand how it works. In fact, most group participants saw the card as an improvement over the way in which they receive their pay, handle paying their bills, and manage their fi nances when compared to paper checks. They considered the card more convenient—giving them the ability to get their money without having to go to a bank or check-cashing facility, not having to purchase money orders to pay their bills, plus having the added fl exibility of being able to pay their bills online or over the phone. This research also indicated how carefully many of these workers manage their fi nances through budgeting and other activities despite their unbanked or underbanked status. It suggests these employees would welcome the fi nancial control a payroll solution could provide if it had features that allow them to check their balances frequently (for example, through IVR, online, and via text messaging from the provider).

Finding #4: Employer engagement is critical to a successful program.

Corporate education is critical to employee adoption. Given the minimal understanding among employers, it is not surprising that the employee base—including unbanked or underbanked and those holding part-time or temporary jobs—are not aware of payroll cards.

Among APA user members, the majority (71%) report that fewer than 25% of employees who were paid by paper checks a year ago have been converted to payroll cards. Half of payroll card users describe their enrollment efforts as “somewhat successful,” and a third characterize their success as “uncertain.” [Chart 9] With perceived success in question, program metrics should be established prior to rollout.

Base = 34

1The Marke t for Payrol l Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009

4%

14%

50%

32% Uncertain

Not at all Successful

SomewhatSuccessful

Very Successful

Chart 9: One-third of employers were unsure if enrollment was successful—communication and education are key.1


Motivating employees emerges as the fi nal, and perhaps most challenging, hurdle and effective communications is the key to surmounting this obstacle. Employees defi nitely expect their employers to educate them about this option, although word-of-mouth from friends and information received from community or church groups may also be impactful.

The research fi ndings suggest that the medium used to communicate the message may be as important as the message itself. Although user companies lean toward internal announcements, paycheck inserts, and signage to reach existing employees and to mandate that new employees take payroll cards, the qualitative research suggests that employees might prefer company meetings or forums with videos and instructions. [Chart 10]

User companies focus on the following messages to communicate the value of a payroll card solution, emphasizing the most important benefi ts:

• No need to stand in a check-cashing line• Money is available immediately• 24-hour access to cash through an ATM• Card widely accepted both locally and online• Can pay bills more easily and conveniently vs. money orders• Safety—can get money back if card is lost/stolen• Ability to save money

In addition, employees cited the potential of reward or merchant discount programs as value add that could contribute to their interest in using payroll solutions. Not surprisingly, employees are especially sensitive to ATM withdrawal fees.

Chart 10: Employee preference for receiving communication on payroll cards differed from current methods employed.1

1Payroll Card Exploratory Findings and Implications, Chrysalis Partners, LLC, 2009.

Focus group participants reacted positively to messaging around:Employees preferred:

Small group meetings

Informative videos

Printed brochures that provide details on the benefits of the card

Time savings

Immediate access to money

Ability to save money

Security

Ability to better control /manage finances

Merchant discounts and rewards

Ability to shop online

Clear explanation of fees(for example, fee chart)


Research among the APA user base suggests that four benefi ts are most important to employees and should be highlighted during the employee education awareness:

• Immediate access to pay• Replacement of lost/stolen cards with remaining value• Zero liability if card lost/stolen* • Ability to make purchases at any MasterCard merchant

Employers in general seem to recognize the importance of account information being made available to employees, whether via IVR, online, or with paper statements, as well as access to rewards and merchant discount programs.

Conclusions With over 100 million people in the United States considered unbanked or underserved5, it is estimated that the payroll card market in the United States will be in excess of $89 billion by 20156. As is the case with any product that introduces change to preexisting business processes, the payroll card market has its set of challenges. The picture that emerges is one of a powerful idea that is too little known, not known well or even misunderstood, and poorly communicated. Those who really do understand the offering and its benefi ts have not been able to penetrate the consciousness of most American businesses, and have not delivered a compelling argument to motivate those that are aware—not even motivate to investigate, consider, or get senior management support, let alone adopt. Employers, in turn, have often not been able to motivate their own employees to enroll in the program.

Misperceptions among employers, particularly about fi nancial and legal aspects, pose obstacles that straightforward education should be able to diminish. Employers’ own misperceptions about their employees provide an additional challenge that can be addressed with a better understanding of the advantages of payment cards over checks from the employee perspective.

For those companies interested in implementing payroll card programs, determining the applicability and quantifying the opportunity are key. Employees likely to benefi t most from the program are those with any one or more of the following characteristics:

• Do not have a checking account• Work remotely• Are temporary, seasonal, or on contract• Receive separate checks for bonuses, commissions, other recurring payments

Understanding that, on average, implementing a payroll card program can reduce costs by 35–45%7, having this information will assist in quantifying the opportunity. Companies interested in implementing payroll cards should also be aware that an experienced payroll card provider has the depth and breadth of resources necessary to not only assist with developing the business case for payroll cards but they will also assist with

• Clarifying company needs• Identifying stakeholders• Determining program requirements—features/functions that must be met at a minimum• Developing the appropriate collateral and training materials • Assisting with employee education and training including – Card issuance and distribution – Enrollment methods that work with your payroll practices

*Card registration required. Additional restrictions apply. Go to www.mastercard.com/zeroliabilty for terms and conditions. 5 Bloom & Cogar “Prepaid Eligible Volume Estimates” research commissioned by MasterCard, 2006.6 PSE, The Boston Consulting Group “Prepaid Card Market sizing” commissioned by MasterCard, 2008.7 Comdata, “Prepaid Customer Research” commissioned by MasterCard, 2008.


MasterCard can assist in helping to identify a payroll card provider able to deliver this level of support.

For companies that supply and support payroll card programs, benefi ts to both employers and employees need to be presented factually, especially the relative benefi ts of payroll cards to checks. It is particularly important that employers be provided with materials for their employees that clearly explain the nature of the offering and speak to the benefi ts of the program from their perspective.

Both quantitative studies indicate that awareness, usage, and receptivity to payroll cards increases dramatically with company size, which could well refl ect the sophistication and participation of payroll managers in professional organizations. However, the concerns of smaller companies about the value to them in adopting such a new program also need to be addressed. Materials should be crafted to fi t companies of various sizes/levels of sophistication.

Based on research, MasterCard feels a sustained, targeted, multi-channel communications and education initiative can turn this situation around. Such an initiative will benefi t employers, their employees, and product providers.

For additional information on the MasterCard Payroll Card program or questions concerning the above research, please contact Elisa Corridore at [email protected] or 914-249-5992, or Neil Dugan at [email protected] or 914-249-4178.

AppendixMethodologies

This white paper draws upon three separate studies carried out on behalf of the MasterCard Commercial Prepaid Group and managed by the Intelligence & Planning Group.

• A study among the membership of the American Payroll Association (APA), carried out in conjunction with that professional organization

• A general business study conducted by TNS Custom Research NA, part of the Kantar Group of WPP• A qualitative study among employees who are currently not paid by direct deposit, carried out by Chrysalis Partners

Details concerning each of the studies follow.

APA StudyDuring November 2008, MasterCard Worldwide, with the assistance of the APA, conducted an online survey among the Association’s members through that organization’s Web site. Prior to launch, information about this study was posted on the APA Web site and notifi cation was sent to all members of the APA. A subcontractor of the APA programmed the survey, which went live at the beginning of November and concluded on Thanksgiving Day. In total, 2,525 online interviews were completed.

TNS General Business Study

Research was conducted among payroll decision makers in U.S. companies, defi ned as

• Small (revenues under $20 million)• Mid-sized (revenues from $20 million to $499 million)• Large (revenue of $500 million or more)

Company names and contact information were obtained from Dun & Bradstreet. A screening process was developed to identify eligible companies, defi ned as those who pay any employee by methods other than direct deposit. Respondents were screened to determine their level of responsibility for making payroll decisions.

Telephone interviewing was conducted over the course of six weeks, from December 3, 2008 through January 26, 2009. Interviewing was suspended for two weeks during the 2008 holiday season. Interviews lasted approximately 20 minutes on average.


In total, 836 screening interviews were conducted: 242 companies were disqualifi ed—no method other than direct deposit is used to pay employees. 594 surveys were completed:

Statistical weighting was used to align the fi nal number of interviews with the universe of qualifi ed companies within size and industry, so that the fi nal sample is representative of the entire qualifi ed business universe of approximately 1.08 million companies.

Chrysalis Employee Qualitative Research

Four in-person discussion groups were held in Houston, Texas, on March 3 and 4, 2009. Two groups were conducted with English-speaking participants and two groups were held with Spanish-speaking participants.

Participants met the following profi le:

• Males and females, age 25–54• Roughly 1/3 were unbanked meaning they did not have any type of banking product and roughly 2/3 were

defi ned as underbanked meaning they had between one or two banking products. None had any type of direct deposit account.

• Full- and part-time employees, paid by cash or check• Work for their present employer for at least six months• Work for companies with at least 10 full or part-time employees• Mix of industries represented• Feels positive to neutral about MasterCard

4--*American Payroll Association

112-*Vendor

912-1Trade association

6222Corporate / HR person

9923Conference / meetings

471111Word-of-mouth

1720910Bank / financial institution

1941514Colleagues / business associates

641312Previous employment

991212Payroll provider

-61312The Internet

111378Trade publications

6666Magazine advertisements

500+(47)

20-499(82)

Under 20(70)

Total(199)

Sources of Product Awareness (%)

1The Market for Payroll Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009.

Base = Informed Non-UsersFamiliar with Payroll Cards

Appendix I: However, awareness in the general business market comes from “word of mouth” and bank/fi nancial institutions.1


1 The Market for Payroll Cards, Findings and Implications of Quantitative Research Among Payroll Decision Makers, TNS Custom Research 2009

Convenient for non–English- speaking employees

Convenient for employees who don’t have bank accounts

Helps employees bettermanage their finances

Is trusted by your employees

Can be easily replacedif lost or stolen

Is inexpensive foryour employees

Makes the most sense for temporary employees

Is preferred by employees

44%

79%

32%

61%

32%

59%

23%

22%

26%

15%

56%

16%

12%

7%

55%

60%

Paper Paycheck

Payroll Card

Base = 594

Reasons employers believe employees prefer checks

What are other factors that would lead an employer to continue paying employees by check instead of by Direct Deposit or other paperless means?

2MasterCard/APA Survey November 2008

6%

7%

8%

10%

11%

15%

23%

24%

28%

32%

46%

59%

Mistrust Banks

Cost/Lack of Savings with Paperless Methods

High Turnover Rate/Pre-Note Time

Union Contracts

Mistrust of Paperless Payroll Systems

Lack of Understanding Paperless Methods

Want to Hide Money

Want to See Check/Prefer Its Comfort

Lack Local Bank Account

Habit/Resistance to Change

Employee Preference/Keep Them Happy

Laws Prevent Mandating Paperless Payroll

Base = 2,525

No Answer1%

No35%

Yes64%

In your opinion, is satisfaction with the status quo (being paid by check) frequently a reason an employee doesn’t choose Direct Deposit?

Appendix II: Another reason companies have not considered payroll cards is that employers believe their employees prefer checks.1

Appendix III: Payroll cards are also not considered because employers think employees are satisfi ed with the status quo and feel emplyees prefer checks2

Reasons employers prefer checks Employers are Satisfi ed with Status Quo of Checks

MasterCard Proprietary & Confi dential

9-481986 10/09©2009 MasterCard

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