Fintech startups are making payday more flexible
The 2018 Survey of Household Economics and Decisionmaking conducted by the Federal Reserve Board found that 3 in 10 Americans would have to borrow money or sell something were they to encounter a $400 emergency, and 1 in 10 would simply be unable to afford the cost. On top of that, a 2019 survey by Charles Schwab shows that 59 percent of Americans live paycheck to paycheck. This combination can lead to significant money worries for a large percentage of Americans who are forced to turn to predatory lenders and payday loans that charge as much as 400 percent APR on a two-week loan.
Although there are numerous contributing factors that can leave working people in dire economic situations, there is some hope for relief courtesy of a new group of fintech companies. As the entire financial world has gone increasingly digital and purchases and transfers can be made almost instantaneously, the idea of waiting two to four weeks to be paid for work that is done is growing antiquated. The fintech companies taking aim at traditional payday methods are looking to finally pull payroll into the 21st century.
Teaming with Employers
No matter how much a worker enjoys a job, he or she is unlikely to stay very long if constantly worrying about money between paychecks. By giving their employees access to their pay as hours are worked, employers provide workers with increased financial security while also increasing the chance of retaining good workers.
Gusto, an HR and payroll platform for small businesses, recently added a Flexible Pay feature which allows employees to get paid when they want. Employers who already use Gusto’s services need to switch on the Flexible Pay option which then allows workers to get paid for the hours they’ve worked since the last paycheck as soon as the next day. It requires no upfront investment from the employers, Gusto simply fronts the money and handles tax withdrawals and other payroll logistics so, from the employer’s standpoint, everything looks like a traditional payday at the end of the month.
Businesses not already using Gusto can give their employees greater access to their wages through other similar fintech startups. Even allows workers whose employers have opted into the program to withdraw money ahead of their paycheck. Rather than interest, Even only charges a monthly membership fee, which employers have the option of subsidizing as part of their benefits package. The company has already partnered with such big names as Walmart, Sam’s Club, and Noodles & Company.
Similar to Even, DailyPay requires employers to opt into flexible payday scheduling. However, rather than charge a membership fee, DailyPay simply charges a low service charge of $1.25 per transaction. Companies such as Vera Bradley, Burger King, and Westgate Resorts have chosen to offer DailyPay’s services to their employees.
Direct to Workers
In cases where employers have not opted into a plan with one of the aforementioned fintech payday services, workers have another option to maintain a steady cash flow. Earnin is available to anyone with a job and a bank account. Registered users simply need to connect their bank account and they can use the Earnin app to take and submit a picture of their timesheet to get instantly paid when they leave work.
Users can withdraw up to $100 per day of the money they’ve already earned. There is no charge for the service; instead users are given the option to pay what they want to keep the community going. Once the user’s paycheck is direct deposited into his or her bank account, Earnin collects on the advanced money.
Under the traditional payday schedule, those who were forced to deal with unexpected financial hardship were forced to overdraw bank accounts and pay significant overdraft fees or get payday loans that were expensive to pay off. Either way, people were faced with the prospect of having an even bigger hole to dig out of than they would if they had access to money they had already earned.
Fintech that is opening up the payroll schedule to put more spending power in the hands of workers are potentially saving their customers from financial disasters. Additionally, as the tech is adopted and banks start taking notice and realizing that they are getting smaller portions of direct deposited payroll checks, they might have to start offering similar services and lower overdraft fees — another benefit to the consumer.