Attention all employers: There is a new trend emerging on the employee salary payment scene:
In the past, employers used paper-based methods such as cash or paper checks to pay salaries to their employees. Many people now choose to be paid by direct deposit into their bank accounts.
However, there are still many people in Africa who do not have bank accounts.
Thus, there has been an increase in the use of digital payments in Africa, and many employers and employees are now choosing alternative payment methods. Could payroll cards could be the next big solution for salary payments in Africa?
What are payroll cards?
A payroll cards is a prepaid card, similar to a gift card. An employer pays an employee by loading the employee’s payroll card with their salary. The payroll card can be used like a credit or debit card, and does not require a bank account. It can be reloaded again and again without needing to be replaced.
The Aite Group estimates that by 2019, there will be over 12 million payroll cardholders in the U.S., compared to just 2.2 million employees receiving paper checks.
Let’s have a look at the pros and cons of payroll cards.
The pros of payroll cards
Cost effective and simple for employers
Using payroll cards eliminates the printing costs, administration costs, and check handling fees associated with paying employees by paper check. The employer simply loads the payroll card with the employee’s salary and a receipt is issued automatically. The cards can be reloaded each month and do not need to be replaced unless damaged or lost.
Instant, convenient use
The employee can use the payroll card immediately and no bank account is required. Cards are issued by major credit card companies, such as Visa, and can be used anywhere that a credit or debit card can be used. Therefore, employees can withdraw cash from ATMs and use the card to make online payments through an online payment platform.
Good for money management
Employees can manage their money more effectively with payroll cards. There is no allowed overdraft, so it’s impossible to go into debt. Employees can add their own money to the payroll card if they wish, as well.
Payments are more secure
Payroll cards have security measures such as PIN codes that make transactions safer and prevent fraudulent use. In the event that a payroll card is lost or stolen, the employee simply reports this loss and can receive a new card loaded with the existing balance. This is an obvious improvement over cash, which cannot be replaced if lost.
The cons of payroll cards
There are more fees associated with using payroll cards than other payment types, like checks. Using the card at an ATM can often incur a transaction fee, especially if the employee wishes to withdraw a large amount of cash at one time. ATMs may also charge a balance enquiry fee. Other fees can include monthly card maintenance fees, out-of-network ATM fees, and replacement fees if the card is lost or stolen.
Many places have laws that dictate how an employee can be paid. Some laws insist that employees are given a choice of how they receive their salary, making it harder for employers to go completely cashless by using payroll cards. Other laws insist that employees must be able to withdraw their entire salary once a month without any associated fees. It’s important that employers find out if payrolls cards are suitable for use in their locale.
Difficult to recover lost funds
If a payroll card is stolen and used fraudulently, there is a long process required in order to recover the lost funds. It’s imperative that employees report a stolen payroll card or unauthorized charge immediately. It becomes increasingly difficult to get the money back as time passes (however, it is still much better than stolen cash).
Could payroll cards work in Africa?
Society is becoming cashless as alternative payments are gaining popularity. Payroll cards are a promising digital alternative to using paper checks or cash, especially in Africa, where there is a large unbanked population. However, with many fees and legal implications, it’s not clear yet whether payroll cards will become a widespread option in the future.