ARLINGTON, Va. – Payroll cards are among the hottest new products in the card field, allowing employers to have a less expensive way to pay their unbanked employees and allowing the employees a less expensive, more secure, way to access their wages. However, until recently, credit unions have been slow to take advantage of the new product and have only recently begun to explore the issues and approaches to offering the cards. Three credit unions, the $3.1 billion, privately insured, Patelco CU, headquartered in San Francisco; the $780 million Nevada FCU, headquartered in Las Vegas, and the $430 million Charter Oak Federal Credit Union, headquartered in Groton, Connecticut expect to offer payroll cards in the third quarter of 2004, and two card service firms, PSCU Financial Services and Certegy, are both poised with their card options. Callahan and Associates detailed Patelco and Nevada Federal's experiences with the cards in a recent market update on credit unions and payroll cards. Patelco had begun preparing a card product for a locally headquartered retail chain only to lose the business to another card issuer that the retail chain determined had more experience with payroll cards. According to Callahan's Payroll Cards: A Paperless Payment Solution for the Unbanked, Patelco's card would have cost the retailer $5.50 per card at initial issuance and the employee $10 for a replacement card. The employer would have also paid $0.50 per card to load the card after the first two free loads per month, and the employee would have paid $1.50 per withdrawal with the card after the first five free withdrawals per month. Scott Waite, CFO with Patelco, said that the credit union had been disappointed to have lost the business but is still preparing the card for other employers and planned to offer it to them soon. Tim Kaliban, assistant vice president with Certegy, the card processing firm based in Alpharetta, Georgia, said that Patelco, like most other credit unions setting up payroll cards, had been on its own when establishing card fees because the product is still so new. “There really aren't any industry norms yet for fees,” Kaliban said, “even among credit unions. Everyone is still trying to figure it out.” Kaliban reported that Certegy had one bank client that is actually issuing a payroll card that Certegy processes and that there were several credit unions that were getting close to issuing them. Each credit union is debating the issue of fees individually, Kaliban explained, deciding whether to charge the employer or cardholder anything and trying to figure out whether they will focus on making money immediately on the card issuance and transactions or in the longer term by drawing cardholders into becoming members. The latter approach is the one that Nevada Federal has begun to favor, according to Pete Jenkins, a vice president with the credit union. Jenkins reported that Nevada Federal had opted not to charge fees to the employers or the cardholders, as long as the cardholders used a local surcharge-free ATM Network to access their wages as cash. “We have done some research and found that many area employers were down on payroll cards because they had become convinced their employers would be gouged by the card's fees,” Jenkins said. Jenkins reported on a lunch for seven area human resource officers, six from Las Vegas casino's and one car dealership, which the credit union had sponsored to introduce the card idea. “When they arrived they looked really glum, sort of like they had come because they like Nevada Federal but were really down on the card,” Jenkins said, “but by the time they left they were a lot more cheerful about the cards.” Jenkins said Nevada Federal won the HR officers over by emphasizing that, unlike other card issuers in the area, Nevada Federal was not planning on charging fees for the cards but would instead make money from the interchange and from gradually inducing cardholders to become credit union members. Jenkins reported that Nevada Federal hoped to have 15,000 payroll cards issued by the middle of 2005 and that the credit union had completed the last operational review prior to taking the product into a pilot program with a local employer, probably a gaming company with multiple sites. Charter Oak FCU has launched its card program and is now looking for an employer with whom to issue cards. Ray Currier, product development officer with Charter Oak said that the credit union had found the product, which is has dubbed the Paymate Card, to be a natural fit with its direct deposit program. Currier said that the credit union had focused it on employers who would like to save money with direct deposit but whose employees were cautious or reluctant to have a relationship with a financial institution. “We will even send someone out to a work site to sign up employees so that no one has to come down to the credit union,” Currier said. “We want to make it as easy as possible.” Like Nevada Federal, Charter Oak plans to primarily make its money from the interchange the cards produce and from any new memberships that might arise from the cards, Currier reported. Some of the credit union's employees are already using the cards as beta testers and the credit union has begun to market the product to area employers. PSCU Financial Services is also working to produce a payroll card product, according to Ron Silvia, director of PSCU's prepaid card services. The credit union owned co-op had actually been fairly far along with developing a prepaid product but the merger of First Data, the co-op's processing partner, with Concord had slowed development, Silvia explained. Concord had a payroll card platform already established, Silvia said, and it was easier to adopt that PSCU's needs than to keep working with First Data to develop its own product, he added. [email protected]