Personal finance
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Amway, the massive direct selling and multi-level marketing company, announced Tuesday it will partner with Citi Prepaid to offer its salesforce — Independent Business Owners or IBOs, in Amway parlance — their bonus payments by prepaid debit card, rather than making them wait for paper checks to clear. This is but another step in the ongoing prepaid-ization of small payments.

Already, certain states have teamed up with prepaid card providers to offer unemployment benefits on prepaid cards. Bank of America administers South Carolina’s program; Kansas and Maryland have teamed up with Citi to dispense their unemployment benefits. All three states were seeking to reduce the costs of their disbursements programs by eliminating paper checks. Citi and Bank of America, of course, did not forget to levy their fees on the cards, stirring up a bit of controversy in the process — should a bank be able to charge you convenience fees when your state forced you to take your unemployment benefits on a prepaid card? Why does it seem that governments and banks collude to take a taste of all of my money?
Pyramidal, but not a scheme…exactly

And with Amway’s adoption of Citi’s prepaid platform, the same questions arise. Amway, like many state governments actually, has a less-than-positive public perception to deal with, making these questions more pressing. Amway, like Avon and CutCo, is a direct-selling business, where IBOs are given the tools and inventory to sell various consumer goods, like soaps, detergents, cosmetics, and vitamins. Also, IBOs get bonuses for recruiting new members, as well as a cut of “downstream” members’ profits from their sales. This business model has put Amway on the wrong side of pyramid scheme accusations in more than one instance, though no court has ever agreed.

For a good analysis of why Amway (and direct-selling businesses in general) is similar to a pyramid scheme without actually being a pyramid scheme, read this USA Today story on the topic. In essence, there are very few people who have really succeeded in Amway, and they primarily sell very expensive advice downstream, rather than selling actual products. Newer IBOs who sell products make as small as 1% commission on their products — a large chunk of their profits going upstream — and they are stuck with items that are marked way above their market value, making them difficult to even sell.

According to the story, Amway IBOs make just $115 a month on average. Only 0.26% of sellers earn more than $40,000 annually, according to USA Today. It’s not a pyramid scheme, because there is a product for sale, and it’s all above-board otherwise, but income distributes itself in distinctly pyramidal fashion.
Should your employer choose your bank?

Now, the small sums that most IBOs earn will be deposited directly on to an Amway Visa Prepaid Card, at least the new enrollees. Anyone joining since December 2011 will be automatically enrolled in the program, which they can opt out of if they like, according to an Amway spokesperson. Existing IBOs can opt in to the card system if they like, and opt out afterward at no cost, she added.

While partially optional, it’s perhaps an appropriate way for a company like Amway to distribute funds, when they don’t offer compensation checks large enough to necessarily push their workers into direct deposit, like most full-time employers tend to. An average Amway employee might very well be un- or underbanked, making a prepaid card an attractive and cost-effective way to do payroll.

Amway is not the first company to switch their payroll services to prepaid cards. Citi’s website boasts of their deals with Men’s Wearhouse and Stein Mart, both of which are retail companies that likely have many part-time employees, making paper paycheck distribution somewhat difficult.

Just how fair it is for employers to push their employees into effectively becoming customers of certain client banks in order to save money?

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