Why 'earned wage access' is suddenly a big deal
Most of us are used to receiving our salaries twice a month, like clockwork. But it doesn't have to be that way — and increasingly, as the coronavirus pandemic has challenged many fundamental aspects of how our economy operates, companies and workers are questioning why they have to wait so long for their paychecks when their expenses happen every day.
Fintechs are working to give workers access to funds as soon as they've earned them; or rather, as soon as they want them. If I want to be paid weekly or daily, there are now companies that can provide that through my employer.
It's a concept that's more readily understood in the gig economy, where Uber and Lyft drivers can request faster access to funds they've earned so they can buy more gas ahead of their next passenger. It's also familiar to waitstaff or delivery drivers who receive their tips at the end of a shift.
The pandemic has greatly disrupted many people's cashflow, and made financial management much more stressful. Earned wage access is one way to provide relief to those who still have an income but find themselves financially strained.
But there are challenges to bringing this model to the standard workforce. A lot of people will hear the concept of "earned wage access" or "early wage access" and equate it with a payday loan, where people borrow funds against future paychecks at a punishingly high interest rate. If the earned wage access model is to grow, it must be clear about the value it provides and why the concept is so different from what came before it.
Simply providing faster access to paychecks doesn't solve the underlying problem employees are trying to solve, such as paying impending bills and other financial needs. And as this market grows, it will become more important for the fintechs in this space to make clear what exactly employers get from working with them — and how these vendors can prevent their products from causing as many financial management problems as they solve.
Today, PaymentsSource senior analyst Michael Moeser will talk about the concept with Safwan Shah, the founder and CEO of Payactiv.