Are On Demand Paychecks a Way in the Future?
On a previous job, many years ago, when this glorious day appeared, the secretary in a loud voice declared that the “eagle had landed.” Then as quickly as possible, we each worked our way to her office to receive the Payment for our previous month’s work. If one gets paid once a month, it’s a long period between payment, so those initial few days passed a week or so of being without money were awesome. I can even remember when I waitressed and received my little brown envelope of cash that was waiting at the end of every pay period!
Today many of us are paid electronically, but little else has changed.
Many employees struggle to save their money from paycheck to paycheck – a recent poll revealed that over half of employees experience issues covering their costs between pay periods, and nearly one third claimed a surprise expense of around $500 can make them unable to meet other financial obligations. Another study discovered that almost one in three employees run out of money, even those making in excess of $100,000. 12 million Americans must use payday loans during the year, and each year $9 billion is collected in payday loan fees. The average annual percentage interest rate (APR) for a payday loans is 300%.
Based on PayActiv, over $89B are paid in fees from the 90M workers living paycheck to paycheck, that is the majority of the US population. Instant payroll would annually place over $25B into workers wallets, just from savings from abusively high APR fees.
When desire forces innovation
We are on the verge of a new world order that has connection with pandemics or shifting workplaces, and much to do with why workers want to receive their payroll. Employees, not able to survive between paychecks and tired of turning to high-interest loans to fill the gap, want to access their hard-earned pay as and when wanted. Over 60% of U.S. employees that have struggled monetarily between pay periods over the last six months know their financial circumstances would improve if their employers permitted them immediate availability to their earned wages, free of charge.
While a few people might think this a political point, the fact is it is about financial wellness. Based on SHRM, 4 out of 10 workers are not able to pay an unexpected expense of $400. Their report additionally references Gartner information that found that less than 5% of major US companies with a majority of hourly-paid workers use a flexible earned wage access (FEWA) solution, yet it’s expected that this will grow to 20% by 2023.
Why should a worker need to wait for days or weeks to get paid for their time and ability?
Improving the worker environment
Giving workers access to their money instantly could disrupt, perhaps even, change, the manner in which we collect payroll and review our paycheck. Already its possibility is recognized, also, in some instances, companies are using it to differentiate their company and attract new talent. For example, to stimulate interest for personnel, Rockaway Home Care, a New York care operation, is promoting its flexible pay options on the internet.
Others currently provide on-demand payment – where workers finish a shift, they can access their money as soon as 3 a.m. the next day. Via an app, workers may transfer their pay to a bank account or debit card. Walmart is another example of a company that offers its workers access to their pay. Employees can access wages early, up to eight times per year, without cost. The feedback from employees has been incredible, and Walmart is expecting increased usage. Meanwhile, Lyft and Uber each provide their drivers the ability to be paid once they have earned a certain amount.
The change of payroll is not limited to the frequency of payments. Venmo, Zelle, and other app provide flexibility and transaction services that employees now expect from their payroll. They want to be able to access their pay whenever they need to, not every 2 weeks or a monthly period. Most of this demand has come from the gig economy and Gen Z generations – who expect to be able to receive the earnings they have earned when they need it.
The growing rise of workers without bank relationships
In 2018 it was estimated that more than 1.7 billion adults globally do not have access to a banking relationship. In America, a 2017 survey estimated that 25% of people are either unbanked or underbanked – 7% unbanked and 17% underbanked. The survey found that workers who either do not have a bank account, or have an account, but keep using financial services outside the banking system like payday loans to survive. In international payroll , there are over one million people without bank accounts.
There are numerous consequences of having no banking account. In some cases, it may result in problems receiving loans or acquiring a house; it also presents companies with specific challenges. How do you process pay if there is no bank account to move the money into? As a result, employers are frequently looking for alternative ways to process payroll, especially for hourly paid employees. Some are utilizing pay cards, that are loaded electronically every time a worker gets paid. Those pay cards perform the way a debit card does, allowing holders to withdraw cash or shop online.
It’s obvious that instant pay is something that is going to be a part of the banking wellness conversation for a while ahead.