Square’s rollout of real-time wages bridges B2B, P2P services

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Square is entering the earned wage access (EWA) fray, but it’s taking a tailored approach that aims to drive transaction volume within its Cash App.

On-Demand Pay from Square enables employees of companies using Square Payroll to get up to 50% of their earned wages ahead of their usual payday, and if they opt to send the funds to Square’s Cash App they get immediate access at no cost, Square said in a Tuesday press release.

The move gives Square employers an employee retention tool that’s rapidly gaining adoption through third-party providers like PayActiv and DailyPay. Square is also enhancing Cash App's value at a time when the coronavirus has tightened workers' budgets.

Significantly, Square focuses its EWA product around its existing payroll hub without involving a third-party provider. Square recently said it expanded Cash App's direct deposit feature to 14 million users. Cash App has accumulated $1.7 billion in stored funds.

“We created On-Demand Pay for employees so they can access their earnings when they need them, as soon as their shift has ended,” said Caroline Hollis, Square Payroll’s general manager, in the press release.

Square employees receive an email when they clock out for the day, telling them how much money is available for immediate access. Square Payroll automatically adjusts the employee’s earnings for the next payroll, minus the funds already paid out.

In some ways Square’s EWA service initially looks a bit narrower than some providers. On-Demand Pay caps early wage access at $200 per pay period, while certain providers such as PayActiv can advance up to $500 to each worker per pay period.

Square’s On-Demand Pay is also restricted to W-9 employees, blocking gig workers who are an important target audience for other EWA providers. But that could change.

On-Demand Pay charges employees a 1% fee to send funds instantly to a debit card, or they can also opt for routing the money over a few business days for free via ACH. This model is on par with key other EWA players.

Square is simultaneously rolling out Instant Payments, giving its small-business customers the opportunity to fund their payroll instantly from their Square Balance, versus a couple of days ahead of time.

Workers who opt to be paid in advance via Cash App receive funds within minutes, creating a streamlined path for free P2P transfers and spending via the app's built-in Cash Card debit card.

Cash App is Square's primary consumer-facing offering, and originally launched in 2013 without any link to Square's merchant services.

For employers, Instant Payments increases the utility for funds collected through processing card transactions. Until now, the only way to directly spend funds from the Square Balance (without transferring to an external account) was to use Square Card, the business debit card attached to Square Balance.

Critically, Instant Payments enables Square small-business customers to maintain control over payroll funds up to the last minute while ensuring employees are paid on time, addressing the routine cash crunch many SMBs face when wages are due.

“The traditional payroll process is slow and rigid, creating cash flow constraints for employees and businesses alike,” Hollis noted in the release.

Square isn’t far behind rivals in rolling out its EWA service, as demand continues to surge.

DailyPay said employees using its EWA service have been applying the funds to cover shared expenses during coronavirus, not just specific purchases.

PayActiv, which launched a fee holiday during coronavirus, said demand continued for real-time access to earned wages even after PayActiv reinstated a $1.99 fee to receive funds immediately via debit push payments.

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Payroll payments Square P-to-P payments B-to-B payments Alternative acquirers Debit cards
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