By Kari MitchumFormer Speaker of the House Tip O’Neill famously said that “all politics is local,” but it can sometimes be easy to forget just how many services local governments provide. Emergency fire and medical services, plowed roads, drinking water—and yes, even that parking ticket—are possible because of local police, fire and rescue and public utilities.
We often talk about the many ways banks are instrumental in their hometown communities through their direct financial support. But banks also play another role in helping cities and towns across America thrive: by providing local governments with innovative, cost-effective payroll solutions.
Since its founding in 1890, First Financial Bank—a $6.67 billion institution based in Abilene, Texas—has seen the communities it serves change. One of the newest ways the bank helps communities is by administering payroll cards to help local entities like county governments, school districts and city offices more efficiently manage payroll. First Financial’s program provides employees a way to receive their paychecks as a direct deposit to a prepaid card, as opposed to a paper check. And for both payroll administrators and employees alike, the payoffs are numerous.
“We were automating payroll and had employees without bank accounts. The payroll card allowed those employees to have direct deposit without an actual bank account,” says Liesa Hackett, an accountant for the city of Huntsville, Texas, one of the municipalities served by First Financial. “Now those employees who didn’t want an account really appreciate the instant access to their money. And payroll cards have saved us the cost of purchasing and printing paper checks.”
Keeping the city safe
Although the paper check has been declared dead for many years, it is still used by many people, especially in payroll situations where an employee does not have direct deposit—in fact, the average business keeps close to 20 percent of its payroll on paper checks. Short-term employees may opt against setting up direct deposit, and others may not have a checking account at all—the unbanked and underbanked are estimated to be nearly 28 percent of the population. They still have jobs, however, and many are hardworking local government employees.
Government checks are more prone to being counterfeited, so it is beneficial for a local entity to reduce the circulation of their account numbers, check styling and signatures. Criminals are known to hang out in front of check cashing locations, often offering more than face value for government checks. Since the check holder won’t get full value at a check cashing store, the offer can be hard to turn down.
Just like citizens are being told to protect their personal information, cities need to do the same thing—and providing a payroll card program helps reduce fraud. “Check fraud continues to be an expensive reality for businesses, non-profits and banks. Paper checks have enough information for fraudsters to either create very real-looking, fraudulent checks or use the account information to initiate fraudulent electronic transactions,” explains Debbie House, VP of treasury management services with First Financial. “Eliminating paper checks helps protect funds held by our public entities while saving time and money.”
Saving the city—and taxpayers—money
Funds on a payroll card program are dispersed directly to the employee’s payroll card, which saves cities from having to deal with escheatment issues. Normally, if a government entity issues a check and it is never deposited, they then have to deal with escheatment. Not so on a payroll program, since the posting of the funds to the employee’s card account is the disbursement of funds, which saves the city money in the long run.
Having a payroll card product also saves time on the books. The account debit to the payroll is one entry, not an entry for each and every staff person. (The detailed records for each payee do exist, but not on the actual bank account records.)
Government entities pay many people, and not all of them are banked. By issuing a payroll card, all funds are loaded onto a card. (First Financial uses MasterCard.) The payroll card functions as a “checkless checking account” for the customer, and can be used just like any other debit card, whether they’re swiping for groceries or shopping online. They can’t overdraft, which appeals to many. And, like most personal checking accounts, most payroll cards charge no monthly fee if a direct deposit is being made.
“Payroll cards offer employees greater spending power available with a major branded card and protection against losses by reducing the amount of cash they carry,” says House. “They are truly a win-win solution for our public entities and their employees.”
Educating the public
The payroll card program that First Financial uses also includes a mobile app for checking balances, moving money and even personal financial management tools, so the employee can see where they spend. In this way, First Financial is not just helping employees receive their paychecks—they’re growing financially strong citizens.
On many occasions, First Financial has visited local government sites to help educate administrators and employees on the program. The bank’s “First at Work” program helps employees open the accounts onsite and understand the benefits of the payroll program.
Employees are often happy to learn that they get paid no matter what, and that their earnings will be deposited automatically, saving them the hassle of picking up checks in person. They also find reassurance in knowing that their funds will be available on payday, even under extenuating circumstances like snow days. With the payroll card, unbanked or underbanked employees can take advantage of the same benefits that direct deposit employees enjoy.
First Financial has grown its payroll card business and proposes the service for all contracts on which it bids. And after discovering how it saves the both the city and employees time and money, many local municipalities are often quick to offer the benefit. Currently, First Financial has balances of more than half a million dollars on 6,000 payroll card accounts from the public entities it serves.
Kari Mitchum is a financial services and payments professional in Washington, D.C.