The economic impact of the coronavirus pandemic could lead to the ongoing expansion of workers’ access to early, or earned wages (EWA) through advances and instant payouts, including to new types of users.
Fintech firms specializing in employer-sponsored EWA services have seen exponential user growth during the pandemic, with the rising numbers of gig workers hired in health care, fast food and grocery sectors, and new EWA providers continuing to join the fray.
But this isn't just a trend for the gig economy. Instant-wage access could spread across the income spectrum in the post-pandemic economy.
“Weekly or bi-weekly wage payment options will shift to being on-demand, and will also begin to spread to white-collar, salaried workers,” said Ali Raza, senior vice president for the U.S. region at FSS Technologies Inc.
Some third-party EWA providers also hope to expand their roles, becoming gatekeepers or bridges to additional financial services — including credit — for workers, based on their payroll history.
“With some spend data available via prepaid cards, there is opportunity for EWA providers to start offering some savings and credit products, either proprietary or through another fintech. The EWA could essentially become the bank,” Raza said.
Most EWA providers aren’t ready to begin offering loans, and instead focus on pitching their services as alternatives to costly payday loans, because there’s no interest and fees are lower — typically workers pay between $1 and $3 each time they withdraw wages early. Providers integrate with employers’ payroll and time-tracking systems, floating the advance to workers; employers repay the EWA provider from users’ unpaid wages.
The industry has grown significantly in the past several years, and many EWA providers suggest their services enhance worker recruitment and retention. Participants include PayActiv, ZayZoon, Earnin, Instant Financial, Branch, Ceridian and DailyPay. Among newer entrants are Hastee, launched in the U.K. in 2017 and Immediate, a Birmingham, Ala.-based provider that recently launched.
So far the EWA industry isn’t directly regulated, but the National Consumer Law Center in March 2020 issued recommendations for policymakers, including limiting fees to $5 a month with no more than 50% of unpaid income available for advance.
The concern is that EWA services could cause users to lose control of their finances, Raza pointed out.
“Does getting paid every day accentuate the living paycheck-to-paycheck problem by making payments a daily event — can a person ever plan and save?” Raza asks.
But the move toward faster payments could make all wages available quicker for all workers.
Netspend and other prepaid debit card providers tout the ability for users to get paid two days faster because they make direct-deposited payroll runs available before the transaction actually settles. USAA and Randolph-Brooks FCU are among banks that offered the same service as a competitive differentiator.
As momentum builds for faster payments via The Clearing House’s RTP and FedNow’s services, the window of opportunity for third-party EWA providers could narrow, according to some industry observers.
“Given the rapidly evolving landscape for instant and faster payments, EWA companies must move quickly to lock in consumers,” said Rod Reef, a partner with Reef Karson Associates.
Mastercard and Visa got an early lead in delivering wages to workers early, by linking directly with employers like Uber and Lyft so drivers could access their wages within two hours, for a fee, via their respective direct debit push products: Mastercard Send and Visa Direct.
Now, by partnering with EWA providers, the card networks have found an easier way to propagate their services.
“We’ve been out talking to businesses about using direct debit rails to deliver wages, but with coronavirus we really started to see a surge in interest from employers,” said Cecilia Frew, senior vice president and head of Visa Direct.
The strongest demand has come from long-term care health providers and franchisees of brands like Domino’s Pizza, Frew said.
“People are working double shifts at some of these companies and they don’t have time to navigate finances, and EWA gives them immediate access to their money without setting anything else up,” she said.
During the pandemic, EWA providers have added options for delivery workers to get immediate access to their tips, too, Frew said.
One immediate competitive challenge for the EWA industry is downward pressure on fees. In the early days of the pandemic, many EWA providers waived fees for early access to wages. Though most have resumed charging fees, consumers are likely to continue to expect free or promotional deals, analysts say.
For 90 days beginning in March, New York-based DailyPay waived its $1.99 fee for workers to access wages the day after they’re earned, which helped drive up usage, said Jeanniey Mullen, DailyPay’s chief innovation and marketing officer. The company also offers same-day access to wages for $2.99.
DailyPay is now concentrating on enhancing services for employers. This month the company announced an instant disbursement service called Reward. Popular use cases include providing instant cash incentives for workers, such as giving valet parking employees a bonus for arriving on time during inclement weather, Mullen said.
All employees of companies integrated with DailyPay are pre-enrolled in the app, and employers can send out messages announcing incentive programs based on demand.
“With the economy disrupted, employers can respond to sudden worker shortages and pay out bonuses to responders on the spot,” Mullen said.
Cycle, another feature of DailyPay's employer disbursement service, enables employers to deliver final payment on the worker’s last day, to avoid fines when wages are due former employees, which is the case in Californi
“Employers often overpay an exiting employee just to make sure they don’t get fined for owing the employee any funds, and Cycle lets them make an accurate payout on the last day of work,” Mullen said.
The company is betting on giving consumers the option to route funds to any rails they prefer.
According to Mullen, 10% of DailyPay’s users are salaried workers.
“The EWA use case is shifting from an individual need to a household need, as more white-collar workers are furloughed or have their salaries cut,” she said.
A growing number of EWA providers, however, are partnering with card networks to enable a direct debit option for delivering wages, usually for a fee.
Calgary, Canada-based ZayZoon began working with employers in 2014. Typically 30% of employees sign up for EWA within the first month that the service becomes available, said Tate Hackert, ZayZoon’s co-founder and president.
ZayZoon offers three ways for workers to receive EWA — sending funds via ACH to a bank account or reloadable Visa or Mastercard payroll cards or Visa Debit, 86% of end users choose Visa Debit because it’s the quickest, Hackert said. ZayZoon charges a flat fee of $5 for each EWA withdrawal.
ZayZoon began waiving its fees in March for the pandemic and plans to extend the no-fee period through July.
San Jose-based PayActiv, which launched in 2014, serves more than 1,000 employers that are mostly based in the U.S., although the company is now expanding operations in the Philippines and serves some employers in Australia and Brazil through partnerships.
Walmart offers its workers EWA through PayActiv; the HR firm ADP also markets PayActiv, according to Ijaz Anwar, a co-founder of the company and its chief operating officer.
PayActiv offers EWA users various choices of receiving funds via ACH, Visa Direct, a Visa-branded payroll card and the option to divert wages to Amazon Cash for online purchases.
Most users want cash as quickly as possible and pay $1.99 per transaction to load wages to any card or account; there is also a $1.99 fee to pick up EWA funds in cash at any Walmart.
As competition within EWA heats up, PayActiv is looking to expand its range of services, though no plans exist yet to offer loans, Anwar said.
“We’ve solved the liquidity problem workers have. Now we’re looking to develop more creative solutions for helping hourly workers save money,” he said.
