How to get your paycheck earlier (if you’re lucky enough to still have a job)

FINTECH SNARK TANK OBSERVATIONS

In a recent study on the impact of the COVID-19 crisis on employment in the United States, two professors (one from Virginia Commonwealth University, one from Arizona State University) wrote:

“The employment rate fell from 72.7% to 60.7%, implying 24 million jobs lost. Those who still have their jobs work fewer hours; 21% report a drop in their income.

Waiting for payday was hard enough for a lot of people, now it’s getting worse and worse.

Why do we have to wait so long for payday?

Have you ever thought about why we only get a paycheck once or twice a month? The answer is simple: because back then it was not economical for employers to print and send a check every day.

An employer like Walmart, with 2.2 million employees, would spend $ 800,000 a day – $ 290 million a year – just to send the paychecks if they were cut every day.

But thanks to technology, we have direct deposit so employers don’t have to cut and mail checks to a large percentage of their workforce. So why don’t we get our money every day, right after a hard day’s work?

You can get your paycheck earlier

Speaking of Walmart, the retailer has partnerships with two fintech startups that allow its U.S. employees to receive a portion of their pay before payday.

With the service-generally called access to earned wages Where pay on demand—Walmart employees can get up to eight payroll deductions ahead of scheduled payouts. Employees get the first eight direct debits for free, but pay a fee for subsequent uses.

The service links Walmart’s payroll system to an employee’s bank account or prepaid cards. Essentially, employees get something akin to a payday loan from their employer for a fixed fee, not a usurious interest rate.

Pay-on-demand appeals to consumers

According to a study by banking consultancy Cornerstone Advisors, nearly nine million Americans have already used paid on-demand services. Of those who used the service, almost half did so twice or more.

Unsurprisingly, the coronavirus crisis is creating a high demand for the service. According to Matt Pierce, CEO of Immediat, a pay-on-demand service provider:

“We have seen an overall growth of 30-40% in the number of paid early access transactions over the past six weeks and we are seeing strong growth in healthcare, particularly in assisted living and healthcare communities. home. ”

Pierce adds, “After going live with an employer, we typically see around 10% adoption in the first month. A 1,100-employee retirement home we welcomed in March saw 17% adoption in the first seven days. “

Jeanniey Mullen, director of innovation and marketing at DailyPay, an earned paycheck provider, said:

“Between March 15 and 17, the number of people transferring their earned wages climbed 400%. Almost 43% of our user base needed to use their money up front for COVID-related purposes. ”

In a survey of consumers with access to its service, Canada-based earned wages provider Zayzoon found that over 80% of wages accessible through the service were used for necessary, non-discretionary spending.

Earned Wage Access Providers Offer Free Services

The number of startups in this space is growing and many are offering free or discounted services during the COVID-19 crisis, including:

  • Plugged. Free to employers and employees, Branch provides financial services that can help employees avoid fees and meet their daily needs: 1) No-fee checking account with debit card (no overdraft fees, no balance minimum) and 2) Cash flow management tools including free instant access to earned wages and budgeting tools.
  • DailyPay. DailyPay is an earned income software provider that integrates with large business payroll and time management systems. The company has coordinated an effort for employees of companies that offer DailyPay by waiving labor income access fees; exempt charges will be in effect until further notice.
  • Same. Even connects to employer payroll systems to allow employees to send their pay directly to savings to help with bills or debts. During the crisis, Even offers its services free of charge.
  • FastP.AYE FastP.AYE is a way for businesses to allow their staff to access their already earned money before payday without the need for expensive credit. The company offers its salary application free of charge to help employees in difficulty.
  • Haste. Hastee is an on-demand pay platform founded to change the way people get paid by giving workers access to a portion of their earned wages. Hastee is giving workers deemed essential to the UK’s coronavirus response free access to their wages before payday until June.
  • Immediate. Immediate offers ImmediatePay, a financial health platform offering quick access to wages earned but not yet paid. The company is waiving fees during the pandemic and has announced a “return to work” program offering no charge for 60 days for new customers.
  • PayActiv. PayActiv is a provider of employer sponsored salary and tip access, as well as a suite of employee financial wellness tools. The company waives all fees for all services during the COVID-19 crisis.
  • ZayZoon. This business includes Tim Hortons, Domino’s Pizza

    DPZ
    , and Subway as customers, and offers free cash advances and free financial education throughout the crisis.

Pay On Demand Is Not A Payday Loan Killer

It is increasingly believed that earned paycheck services could help consumers escape the payday lending trap that many find themselves in. Townhall.com wrote:

“[Earned wage access] is a winner for everyone involved – it’s a payday loan killer – and offers huge benefits to workers who have been struggling trying to make ends meet for years.

Pay-on-demand offers many advantages, but it is not a payday loan killer.

According to research from Cornerstone Advisors, among consumers who have used pay on demand in 2019, almost half also took out a payday loan. Of those who used the service three or more times, 14% also took out three or more payday loans.

Pay-on-demand is a winner out of the crisis

Becoming a payday loan killer is a high bar to cross, but the service doesn’t need to kill these loans to be successful. As a relatively new financial service, more marketing – and agreement on its name – will help accelerate adoption.

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