Visa embarks on payroll with ADP partnership to eliminate paper paychecks

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Visa is directly targeting physical paychecks in its latest partnership with human capital management software provider ADP.

While 94% of workers receive their pay electronically through direct deposit, the checks capture off-cycle payments, such as real-time payments, severance pay, and payroll disbursements for contractors and 1,099 workers. Although circulation decreases each year, the Federal Reserve collected 940 million paper checks worth $ 2.14 trillion in the third quarter of 20.

Employee borderline cases for off-cycle payments are becoming increasingly complicated to deal with as the definition of “working hours” does not apply in the event of a pandemic. ADP and Visa’s latest solution to enable faster disbursements is therefore well positioned to help employers navigate the dynamics of workforce development.

Benefits for employers

The initial use cases of the Visa and ADP partnership will target off-cycle payments, including one-time bonuses and refunds. Visa Direct will provide the rails to push real-time payments and leverage ADP’s Wisely Now Debit program to distribute and access funds.

Especially out of reach are Instant Payments and Access to Earned Wage (EWA) benefits, which are among the most requested off-cycle payments by employees. However, Visa Direct integrates with financial technology providers such as Immediate, DailyPay, PayActiv, ZayZoon, FlexWage, and Instant, while ADP’s Marketplace offers overlapping integrations for employers to deliver EWA benefits. Employers can also offer a 2-day salary advance through Wisely.

The faster payroll market is wide open

The broader opportunity for faster trade disbursements represents a market of $ 9 trillion, Visa estimates. Plus, both have backgrounds in scaling.

Visa Direct enabled faster payments to approximately 2.35 million US small businesses and sellers in fiscal 2020. Globally, Visa Direct facilitated 3.5 billion transactions across 65 national ACH systems , 16 card-based networks, 7 real-time payment systems and 5 payment systems. gateways to T4’20.

Whereas ADP’s payroll coverage includes 460,000 customers who employ 26 million workers, according to its last 10 months. Compared to the February report from the Bureau of Labor Statistics (BLS), the ADP covers about 15% to 17% of the workforce, depending on unemployment levels.

What is there for Visa?

Visa will benefit from routing payment volume to Visa Direct and expanding its “network of networks” to payroll, a multi-billion dollar global market. It will also avoid competition from the Automated Clearing House (ACH) network which has a virtual monopoly on direct deposit processing.

In 2020, direct deposit accounted for 12% of ACH volume, accounting for $ 8 billion in payments for wages, salaries, benefits, and employer-to-personal assistance, according to NACHA. Direct deposits grew 12% year-over-year, while ACH payments initiated by paper check declined 21% year-on-year, suggesting more volume will shift to digital payments for either network to capture.

What is there for ADP?

ADP customers will benefit from savings in processing costs, streamlined disbursements in accordance with payroll regulations, and accelerated adoption and use of ADP’s Wisely product.

For employers, the processing fee can cost anywhere from $ 1 to $ 6 per check, compared to $ 0.15 to $ 1.50 to use ACH, depending on the type and size of the payment. Visa Direct charges ACH a premium for real-time disbursements, but terms of the deal were not disclosed.

For employees, checks take a long time to be paid and can incur similar processing fees. The experience is also archaic compared to the instant gratification of peer-to-peer payouts that consumers expect from fintech apps like Square and Venmo.

The disappearance of the paper paycheck

In the short term, checks remain essential for around 4% of workers who still receive their pay on paper, according to the 2020 “Getting Paid In America” survey. In 2021, they’re a financial lifeline for the 40 million Americans who received their second stimulus check from the IRS in the mail, albeit months after Congress approved the back-up plan.

While the technology for real-time cash disbursement exists and is operated outside of the United States, the payroll breach is complex. Barriers to full dematerialization include labor laws that vary by state, strict regulations such as the Electronic Funds Transfer Act (EFTA), and perceived change costs.

By partnering directly, Visa and ADP are testing the market for faster payroll, capturing the low demand for paperless business disbursements and providing a better experience for workers.

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