It is very easy for many who are new to the fintech space to think that financial technology is an exclusive term for payments technology, and while there is some truth to this, it does not tell the entire story about fintech. However, in June, The Fintech Times is looking to indulge this belief as we look to discuss hot topics surrounding both sending and receiving payments, like buy now pay later (BNPL), early paydays and much more.
Amid the surging cost of living and the rise in the gig workforce, earned wage access (EWA) has become more of a necessity than a luxury. This idea of ‘by-the-mintue’ access to wages has become a serious topic in the wider world of paytech, as getting paid by the week or by the hour continues to diminish in popularity.
A 2021 analysis of the topic by 60 Decibels and the charity-backed fintech service Wagestream confirmed this changing appetite around wage access, with the joint study uncovering how as many as nine in 10 workers want their employer to remove the locked monthly pay cycle.
The same study identified the employers currently offering EWA as part of a financial wellbeing policy, which includes Bupa, Brewdog, JD Sports, Pizza Hut, Leon, Virgin Care, Roadchef and the NHS.
It’s clear to see that the space around EWA is becoming ever more pronounced, and the industry can expect to see even more developments within this exciting form of technology over the course of the next year.
With that in mind, we’ve invited four paytech experts to define what EWA means for them, and how they see it bringing benefits to both employers and employees.
First up we have Kunal Sawhney, the CEO at Kalkine, who views EWA as a suitable remedy to rising levels of financial stress: “EWA is a programme wherein employees can get access to a part of their accrued but unpaid salary at any given time before the actual payday.
“EWA is very helpful for employees who are going through financial stress. Most of the employees who are keen to avail of EWA are Millennials. Employees going through a financial crunch can wade through difficult times with EWA. They can save big on extra penalties of any late payment, hefty interests to money lenders for emergency loans, and bank overdraft fees.
“According to a PWC report, 50 per cent of employees spend three hours a week fretting about their finances. Is salary finance the new payday loan? Although a payday loan and salary finance serve the same purpose, i.e., to lift a needy employee from the clutch of a financial constraint, their modus operandi varies. Salary Finance is a new way that allows employees to draw money from their accrued salary (but not paid). However, a payday loan is a short-term loan an employee takes from any moneylender at a very high-interest rate.”
Jim Colassano, SVP, product development and strategy at The Clearing House, clarifies how EWA is helping employers to appear more attractive whilst allowing them to draw in new levels of talent: “Pay-on-demand and EWA became important benefits for many employees and as a recruitment and retention tool for employers.
“It helps employees because it allows them to access the money they have already earned (but have not received yet during the regular pay cycle) when and if they need it. It helps workers with unexpected expenses, such as an emergency auto repair, without having to dip into savings or rely on credit.”
Jim bolsters his point by providing real-world examples of the paytech in action: “There are numerous examples of Pay-on-Demand and EWA, many of which are paid in real-time over the RTP network:
“Gig economy: Uber and Grubhub, to name two gig companies, allow drivers and couriers to cash out instantly. Drivers/couriers can have their earnings sent directly to their bank account at any time, and some drivers or couriers actually have wages sent to their bank account multiple times a day. These payments, often over the RTP network, put the worker in control of exactly when they want to get paid.
“Retail/Service Industry: With a tight labour market, retailers and restaurants, for example, are starting to allow workers to get paid when they want to be paid. EWA is an important benefit for employees, and it allows them to access earned wages when needed. Some fast-food chains are attracting employees with promotions that say, ‘work today, get paid today.’
“Retailers, such as Walmart, Kroger and Dollar Tree, also offer instant pay options. DailyPay, Payactiv, Payfare and Paychex are a few of the payroll providers who are offering instant pay over the RTP network.”
Yusuf Ozdalga, partner and head of UK and Europe for QED Investors, identifies how EWA enables a higher level of financial freedom: “The data tells us that more than half the workers in the UK and the US are working paycheck to paycheck, meaning that they have less than £300 left in their bank account at the end of each month.
“This causes tremendous stress for these workers, and knowing that they can access their already earned wages creates an element of safety. If their car breaks down and they need £200 to fix it to get to work, in the old days they would have had to have a stressful conversation with loved ones, asking for money, or in the worst case, go to a predatory lender. With EWA, they can take out the money they have already earned, and do it instantly, with no approvals needed.
“It is important to note that EWA works best when the unexpected cash need is less than the monthly disposable income. So for example, if I end up needing £200 to fix my car as in the example above, and my disposable income for the month will be £400, EWA makes a lot of sense.
“If, on the other hand, my unexpected need is £2,000 then I would need a responsible lender to step in with a cost-effective and customer friendly instalment plan to lend me that money over several months, paying it back in instalments over time.”
Concluding our discussion, Fidelma McGuirk, CEO and founder of Payslip, goes further than to outline the benefits of EWA, describing the practical implications of its implementation: “EWA enables company employees to access their wages and salaries at several points in a working month as opposed to a fixed single payment at the end of the month, e.g. the traditional payday.
“Global employees earn their wages as they work and EWA operates with the view that they should then be able to access them at the point at which they have earned them.
“The implications for payroll are big. This would involve significant complexity and potential compliance issues. They would need to partner with a payments company or fintech provider that easily allows them to release funds into employee bank accounts multiple times in a working month.
“It also has implications for HR who would need to decide what kind of company policy to implement around this, e.g. how many days in a particular month are they willing to release payments for EWA.”