US banks are being forced to offer prepaid payroll cards for competitive reasons, Joshua Gilbert, a principal at First Annapolis Consulting, tells Robin Arnfield.

"Increasingly, the RFPs (request for proposals) coming out of US corporations to banks’ treasury departments are asking for payroll cards," Gilbert says. "Payroll cards will become a very common offering within the suite of treasury services offered by banks. Corporations will expect their banks to offer payroll cards."

Gilbert says that US banks see offering payroll cards as a defensive move. "Payroll cards are relationship products," he says. "Banks are afraid that, if they don’t offer payroll cards, and a corporate client requests payroll cards, the client may get the cards from another bank. This could open the door for the other bank to sell the client additional treasury services to the detriment of the original bank."

Market entry

"The first big wave of large US banks entered the payroll card market 12 months ago," says Kishore Bayyapureddy, senior vice president and general manager of Prepaid Solutions at US-based processor FIS. "Over the next 12 to 24 months, many banks in the $20-$50bn and the over $50bn asset ranges will be launching payroll card products. After that, the next wave of banks entering the payroll card market will be financial institutions in the $5-$20bn asset range."

"Many US banks have either started offering payroll cards or are figuring out how to enter the payroll card market," says Gilbert. "Unequivocally, US banks are going to offer payroll cards."

In March 2012, US consultancy Mercator Advisory Group and the American Bankers Association (ABA) surveyed US banks about their use or planned use of prepaid card products. Of the 310 respondents, 109 had implemented a prepaid product; 40 were currently evaluating prepaid; 58 had already evaluated prepaid and decided not to issue prepaid cards; and 103 had never evaluated prepaid.

The Mercator/ABA survey, "Prepaid Cards: A Survey of Banks’ Attitudes, Adoption Rates, and Deployment Plans" found that, among respondents offering at least one prepaid card product, 21% had issued payroll cards and 25% planned to issue payroll cards.

"Some banks feel comfortable using a specialist payroll card program manager, which retains control of the outsourced portfolio," Gilbert says. "This involves the bank taking a hands-off approach, and just providing card branding and access to its treasury clients. Other banks want greater control, in which case they would own and internally manage their payroll card product, and use a processor such as First Data."

"In addition to payroll card processing, FIS can provide program management capabilities to smaller bank payroll card issuers which lack that capability," says Bayyapureddy. "FIS is looking to expand in the payroll card market."

Specialist non-bank US payroll card providers include FSV Payment Systems, Comdata, and TransCard.

Banks have to decide what are the trade-offs between outsourcing their full program or just the processing, says Gilbert. "If they outsource their full program, they will lose a share of the revenue from payroll cards, but they will gain a faster time to market," he says. "Payroll cards have a clear market from a bank’s standpoint. It’s relatively easy to get a payroll card program up and running, particularly if the bank uses an outsourced service provider. Also, payroll cards don’t need close integration with the bank’s retail banking platform."


In November 2012, U.S. Bank acquired Jacksonville, Florida-based FSV for an undisclosed amount. Following completion of the acquisition, FSV will be incorporated in U.S. Bank’s Elan Financial Services unit.

"U.S. Bank’s purchase of FSV is an example of consolidation in the payroll card market," says Gilbert. "Prior to its purchase of FSV, U.S. Bank was already very active in payroll cards, promoting its AccelaPay product very aggressively."

In the November 2012 issue of First Annapolis’ Navigator newsletter, Gilbert wrote: "Acquiring FSV will enable U.S. Bank to manage all aspects of prepaid card issuance in-house. This acquisition is also notable in that it represents the first major financial institution purchase of prepaid-related assets. U.S. Bank has clearly sent a message to the market that it is bullish on prepaid and intends to compete aggressively in this burgeoning segment."

Market size

The US prepaid payroll card market is smaller than the open-loop general-purpose reloadable (GPR) prepaid card market, both in terms of gross dollar load volumes and numbers of active cards.

According to the Aite Group report "The Contenders: Prepaid Debit and Payroll Cards Reach Ubiquity," the number of US active payroll cards rose from 3.1 million in 2010 to 3.7 million in 2011 and an estimated 4.6 million in 2012 and 9.1 million in 2016. The number of active GPR prepaid cards rose from 6.6 million in 2010 to 8.2 million in 2011 and an estimated 10.2 million in 2012 and 20.2 million in 2016.

Aite Group senior analyst and "The Contenders" report author Madeline Aufseeser says that gross dollar volume (GDV) loaded on US prepaid payroll cards will increase from $20.9bn in 2010 and $26.6bn in 2011 to an estimated $34.1bn in 2012 and $62.6bn in 2016. Payroll cards’ share of total US payroll and GPR prepaid card GDV loads will rise from 37% in 2010 and 38% in 2011 to an estimated 39% in 2012, falling to 37% in 2016.

"The ratio of prepaid debit card GDV to payroll card GDV will stay fairly constant over time, barring any regulatory changes that could enhance or hinder the product economics or utility favouring one of the cards," Aufseeser writes in her report.

According to the 2011 Underbanked Market Sizing Study by the Center for Financial Services Innovation and Core Innovation Capital, the US prepaid payroll card market grew by 21.8% to $0.9bn in revenue terms year-on-year in 2011 from $0.7bn in 2010.

"We’ve seen a lot of growth in payroll cards," says Aufseeser. Walmart has offered its US employees payroll cards since 2009, while McDonalds signed a contract with FSV in September 2012 to provide payroll cards for employees of its US restaurants. "Payroll cards are going to continue to be a growth market, with much greater product penetration," Gilbert says.

Market leader

The largest US prepaid program manager is First Data, with estimated GDV loads of $16.9bn in 2012, which represented 49% of total US 2012 GDV loads, according to Aufseeser. She predicts that, because of First Data’s dominance of the payroll card market, it will be challenging for other players to increase their share. In 2016, First Data will still have a 49% share of total GDV loads, Aufseeser says.

In second place is NetSpend with its Skylight payroll card portfolio, which had a 9% market share and GDV loads of $2.9bn in 2012. Comdata had GDV loads of $2.35bn and a 7% market share in 2012, followed by JPMorgan Chase, with GDV loads of $1.95bn and a 6% market share, Aufseeser says.

Citigroup and North Carolina-based bank BB&T respectively had GDV loads of $830m and $190m in 2012, Aufseeser estimates.

Aufseeser estimates that First Data had 2.01 million active payroll cards in 2012 with a share of 44% of total active payroll cards. NetSpend was in second place in 2012, with about 425,000 active cards and a 9% share, followed by Comdata with 345,000 active cards and an 8% share.

Chase, Bank of America (BofA), Citi, and BB&T together had around 600,000 active payroll cards in 2012 and a 13% share of total active cards, Aufseeser says.

Specialist providers

"While many of the banks have stellar (payroll card) programs, it is the specialty providers that have made more significant progress in the market," Aufseeser writes. "The large bank programs tend to be handcuffed by the banks’ treasury departments."

Aufseeser says the banks generally have conservative approaches to payroll card programs. "For example, Citi’s payroll program does not permit portability to a GPR prepaid product when consumers leave their employers’ payroll," she writes. "Other banks and sometimes employers do not allow value loads on payroll cards that come from sources other than the payroll deposit."

"While bank-based programs have been successful because of existing commercial relationships with employers, they are not out front and centre with the innovative product features and choices that the non-bank providers have," Aufseeser adds.

According to Aufseeser, issuers which can develop programs enabling payroll cardholders to transition to GPR prepaid cards will reap a bonanza in cardholders and load volume. "This is because payroll cardholders are already accustomed to having direct deposit on their cards," she writes. "When those customers are converted to a GPR prepaid product, they will have a much higher probability of having direct deposit on the prepaid debit card. Direct deposits yield a longer life and more profitable cardholders for a GPR prepaid portfolio."

Aufseeser says that several banks, such as Chase and U.S. Bank, as well as NetSpend, are in the best position to convert their payroll cardholders to GPR prepaid cardholders. "The monoline companies (those that do not have both payroll programs and GPR prepaid programs) such as Comdata and ADP, could be disadvantaged," she writes.

Aufseeser says that banks must be able to break down their organisational barriers if they want to convert payroll cardholders to GPR cardholders. "Banks should integrate their payroll programs into their retail (GPR) prepaid card organisation to capitalise on the market opportunity," she writes. "The GPR prepaid card payments teams have a more innovative approach to the business and could capture more cardholders through payroll product portability to GPR prepaid cards."

First Data

First Data issues its Money Network payroll cards through MetaBank, which specialises in providing prepaid card bank identification numbers (BINs) to program managers, and BofA. In addition, First Data distributes its payroll cards through a partnership with payroll services firm ADP.

BofA launched its Money Network program in December 2011, enabling BofA Money Network cardholders to withdraw cash from 17,750 BofA-owned ATMs and 5,700 BofA branches. "BofA sells its Money Network payroll cards to employers through its Bank of America Merchant Services subsidiary," says Mark Putman, senior vice president and division manager of prepaid solutions at First Data.

"In addition to their payroll card programs with First Data, both ADP and BofA have their own, separate payroll card portfolios," says Aufseeser. "ADP’s independent payroll card portfolio had GDV loads of $1.69bn and a 5% share of total GDV loads in 2012, while BofA had GDV loads in 2012 of $1.16bn on its own portfolio. ADP had 4% of total active US payroll cards in 2012, while BofA had 5%."

First Data has around 4,000 US companies enrolled in its Money Network program, including Walmart, American Airlines, and Wendy’s. "We have employers of all sizes, from the largest US corporations down to firms with 500 workers, using our cards," says Putman. "We continue to go downstream to smaller firms, but the challenge is that, at the lower end of the market, it is harder to educate the employers and distribute cards to them."


Open-loop prepaid cards are exempt from the Durbin Amendment’s cap on debit card interchange, provided issuers meet certain conditions, such as not using ACH networks for bill payments and account-to-account transfers. Instead, open-loop prepaid card issuers have to use the card networks’ infrastructure for bill payments.

"First Data has taken the view that not offering ACH capability on a payroll card limits the cardholders’ options," says Putman. "So our payroll cards have lower interchange in return for an ACH capability that allows cardholders to transfer funds from their payroll cards to their bank accounts and pay bills. Despite the restriction on interchange, we can still make money on payroll cards, due to our scale."

Money Network cardholders receive Money Network cheques drawn on their prepaid payroll account that they can use to pay bills or withdraw cash free of charge at 7,800 cheque-cashing locations across the US. They also have access to 43,000 surcharge-free Allpoint ATMs.

"Interchange is the main revenue source with payroll cards, as, for regulatory reasons, payroll cardholder fees are more consumer-friendly than is the case with GPR prepaid cards," says Putman. "First Data has the option of charging employers a fee for the payroll card packets that we send them for their staff, but, for large deals, the employer is not charged a payroll card packet fee. The benefit of payroll cards to First Data is that they increase the number of debit card transactions, which enables us to acquire more payments."

Putman says that First Data’s payroll card processing business is growing faster than its GPR prepaid card business. "Payroll is the most significant prepaid card channel for us, although, in gross dollar load volume terms, our payroll and GPR businesses are fairly similar," he says.


In January 2013, US cash transportation firm The Brink’s Company announced an agreement with NetSpend to market the Brink’s Money prepaid payroll card to US employers. Brink’s said that the initial rollout of Brink’s Money will take place in the first quarter of 2013.

NetSpend will act as the exclusive program manager and processor for the Brink’s Money payroll card, Brink’s said. The company added that it intends to offer the card to its own employees.