Is prepaid the solution to improving wage access in the coronavirus pandemic?
As the coronavirus crisis fuels even stronger demands for early earned wage access, Ceridian seeks to rise above the competition with its own on-demand digital wallet and prepaid Mastercard.
The early earned wage access market has been experiencing significant growth over the past few years as gig economy companies have been driven to provide faster payments for completed jobs such as shared rides, or access to pay in between periodic payrolls as a way to attract and retain independent contractors. For example, Uber started offering Instant Pay in 2018 to its drivers to pay out their earnings upon request.
Beyond gig economy companies seeking faster payment solutions, there have been an array of fintechs bringing earned wage access solutions to traditional companies that employ millions of hourly workers who have been struggling to make ends meet between the typical two-week payroll payout.
Ceridian, the human capital management firm, brings a few twists in its offering to the on-demand earned wage access market. Ceridian is leveraging its time, attendance and payroll offering to provide exact worker wages to run an on-demand earnings statement at any point during a traditional payroll cycle. The net of tax earnings are automatically loaded into its digital Dayforce Wallet, which comes with a physical prepaid Mastercard.
“We are addressing a massive problem. The reality is that 80% of people need money as a bridge between paydays, and the current COVID-19 pandemic is making things worse. People shouldn’t be paid in arrears, and our wallet changes that,” said David Ossip, Ceridian's chairman and CEO.
Other companies in this space include PayActiv, which has been active for a number of years in the earned wage access market, partnering with ADP in 2018 to offer its services to 600,000 employers and Walmart in 2017 to bring earned wage access to 1.5 million Walmart associates.
PayActiv reported that for most companies the wage access is provided for a flat membership fee of $5 per pay period when used. This allows a consumer to access up to 50% of the net earned wages with a $500 limit. It should be noted that in response to the coronavirus pandemic PayActiv has begun to temporarily waive access fees for millions of workers since late March.
The growth of on-demand early wage access has not been limited to U.S. shores, as indicated by the recent launch from Mastercard of its Pay On Demand platform, in partnership with Samsung, that is specifically targeting emerging countries in the Middle East and Africa.
Many of these fintechs, including DailyPay, PayActiv, Instant Financial, Tilpati and Branch, are seeing huge demand from employers who need to quickly hire thousands of workers as the coronavirus pandemic has changed consumers’ shopping and dining habits.
In an example of fintechs building bridges to payroll systems, Branch last month announced an integration with the Domino’s franchisee payroll system to gain access to employee earnings to facilitate faster, more accurate payouts. Domino’s is seeking to hire 10,000 new workers in response to increased demand driven by the coronavirus pandemic. It views early earned wage access as a competitive differentiator for recruiting as its rivals Pizza Hut and Papa John’s seek to hire 30,000 and 20,000 more workers, respectively, to meet coronavirus-fueled pizza demand.
“We had already been offering employees their tips in cash at the end of each night as a benefit, but they would wait till payday for the rest. Now we have a more convenient way for us to distribute and for them to receive that pay," said Rob Scheiper, partner at MAR Pizza Group (a Domino’s franchisee). "A lot of employees really appreciated having extra money on hand from same-day payment of tips offers and it's even more important now. We think this will help with our recruitment and retention efforts."
The growing chorus of demand from both workers and employers for faster access to earned, but not yet paid wages has presented an opportunity for companies, such as Ceridian, that have an inside track on the payroll process and created a need for those that don’t have that access to build it with the employers.
The Dayforce time and attendance HCM solution is used by over 4 million workers across the globe and includes employers such as American Express, Heinz and UBS. The HCM solution gives Ceridian an ability to run an actual payroll in midcycle during a pay period. There is no cost to either the employee or the employer and as such does not represent a payday loan. The existing payroll process and funding schedule is maintained including the funding timing and close-out of pay. This means that payroll administrators do not have to spend reconciling midcycle payouts, unlike the competition, which is approximating earnings and providing a loan.
“We calculate pay down to the hour and minutes since we are the HCM provider to the employer. We then run the full payroll for the employee so there is no approximation," Ossip said. "The earnings statement is run and has to be compliant at the state level with the taxes paid out to state and federal agencies.”
The Dayforce prepaid Mastercard is issued by the Central Bank of Kansas City while the Dayforce Wallet is powered by Central Payments Xchange’s open-API Banking-as-a-Service from Central Payments, which is the acting program manager of the prepaid Mastercard. Ceridian has launched the Dayforce Wallet in the U.S. with plans to release it in Canada, U.K., Australia and New Zealand in the future.