Why Millennials are Choosing Prepaid Payroll Cards
Editor’s note: Paper paychecks and direct deposit to a bank account are so 2010. Organizations are increasingly making payroll by issuing prepaid cards to employees. These act a lot like a credit or debit card, but with less expense involved.
In the second of a series of blog posts, Wendy Humphrey of Conduent discusses the growing enthusiasm for prepaid products among millennials - and how organizations can tap into the
Q: Before we discuss prepaid payroll cards, let’s talk about millennials. Who are they and how old are they?
A: They’re actually the biggest generational group in the workforce today. They became adults in the new millennium. That means they were born from around 1982 onwards.
Q: And they like prepaid payroll cards?
A: Yes, their enthusiasm for prepaid products over the past few years has taken a lot of people in the finance industry by surprise. More and more young people are comfortable using prepaid payroll cards to compartmentalize their spending.
Q: Why do they like them so much?
A: Because prepaid payroll cards help them manage their money better. Research shows young people aren’t comfortable with debt so they try and avoid it. But there’s no chance of over-spending with prepaid – you can only spend what’s been loaded onto the card. And you get none of the overdraft fees you’d get with a checking account.
There also tends to be less trust among millennials for traditional banking institutions, compared with previous generations. Young people are looking for innovative financial solutions, and prepaid fits the bill.
Q: It sounds like there’s less flexibility with prepaid cards than you’d get with a bank account.
A: That’s not exactly true. Prepaid cards make it easier to manage money. Users can track what they’re buying and where they spend their money. They can also make sub-accounts which let them budget for things like rent, food or travel. And they can set limits on spending. Basically, prepaid payroll cards are like credit cards without the credit check, risk or commitment.
And prepaid payroll cards are safer than walking around with cash. If you lose your card, it can be easily replaced, whereas a check would have to be reissued – usually for a fee.
Q: Do employers want to pay millennials with prepaid payroll cards?
A: The way employees want to handle money is evolving. A prepaid payroll card provides an opportunity to pay them in a way that gives them the flexibility and simplicity they expect. Plus, it’s a great opportunity for payroll administrators because prepaid payroll cards are an easy, flexible cost-effective way to pay their employees. Companies can use them to improve employee satisfaction while cutting costs and administrative fees.
Q: So how do prepaid payroll cards stack up against more traditional payroll methods?
A: Well, take checks as an example. For employees, checks are time consuming and risky. There’s the need to either pick up the check or wait for it to be mailed. Then there’s the trip to the bank, or a check cashing facility. There might even be check-cashing fees. There’s also the risk of a lost check and the inconvenience of getting funds back. Prepaid payroll cards aren’t like cash — they can easily be replaced.
For employers, there’s an average administrative cost of $6 or more per check issued, and this can be even higher when check disbursement isn’t automated. And then there’s the fraud risk.
Q: Would you agree people still think of prepaid payroll cards as products for hourly workforces?
A: Yes, there’s still that perception. Prepaid payroll cards have been traditionally thought of as products for the under or “un-banked.” And it’s true, they’re a great way to get around that problem and they’re great for hourly workers and freelancers. But prepaid payroll cards are great for any employee. The enthusiasm for prepaid cards among millennials just highlights the benefits of a prepaid payroll card. Look up the stats about prepaid card use.
They’ll surprise you.
- 25% of U.S. consumers use a prepaid card
- Of those, 45% are millennials (aged 18-32)
- More millennials use prepaid cards than credit cards
- And the best-paid millennials use their prepaid cards more than less well-off peers.
Q: Is it worth the investment for payroll departments? What if prepaid payroll cards are overtaken by other technologies?
A: Firstly, making the move to a prepaid payroll card program isn’t a huge investment. It’ll save companies time, money and resources. Secondly, prepaid solutions are perfect for integration with mobile wallets. They make money management even more convenient, and more secure. That’s why investing in a prepaid payroll card program with the right provider is an investment in your future.
Coming May 10: Wendy discusses security of prepaid payroll cards
Wendy Humphrey is responsible for product vision and go-to-market strategy for the Commercial Prepaid sector and associated digital payment capabilities at Conduent. She previous oversaw enterprise marketing at JPM Chase for its Commercial Commerce Solutions divisions and supported the product marketing launch for ChasePay and ChaseNet.