One payment method that has been hanging in the background for some time is the use of prepaid and paycards. While prepaid cards are more in line with what are commonly thought of as gift cards, paycards can be issued from a payment solution provider and contain some or all of a paycheck.
A recent article from PYMNTS examined comments made by Scott Schuh, director of the Federal Reserve of Boston's Consumer Payments Research Center, in a recent podcast. He spoke about payroll cards and prepaid cards and said that there is still a great deal of confusion when it comes to these cards, their differences and how they work in the payments industry.
"We have found that surveying consumers about prepaid cards is extraordinarily difficult. It's harder than any other payment method because people don't really understand prepaid the way, say, banks and payments industry experts would," he explained. "They're very complicated, there's a whole variety of them, and we have to spend an inordinate amount of time trying to help consumers remember, recall and understand what a prepaid card is."
Ultimately, the differences between direct deposit paycards and prepaid cards are incredibly important to understand. Payroll cards are specifically designed for employers looking to move away from manually distributing paper paychecks. Employers carefully consider paycards as an employee benefit and want to make sure there are little to no fees for their employees to use paycards. On the other hand, prepaid cards are more often found in a retail setting or sold by financial firms and carry much higher fees.
There is a report being prepared by the Fed that will help shine a better light on all of this, but until then, businesses that are looking to learn more should partner with a service that understands the nuances of prepaid and direct deposit paycards.