The rise of the Pay-Advance application

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For workers who are living on paychecks even before COVID-19, the reduction in their hours due to the pandemic can stretch already precarious financial situations to the breaking point. Cash-strapped employees who struggle to make ends meet more than ever need quick access to the money they’ve already earned, Ceridian Chief Information Officer Warren Perlman Karen Webster said in a recent conversation.

“Workers need to be able to access their funds because those funds are available to them, especially during a downturn,” Perlman said.

He added that the data on the subject is quite clear. Almost a third of workers run out of money before payday, a problem no longer limited to low-income earners. It really doesn’t take much shock, Perlman added – say, an unexpected expense of a few hundred dollars – to leave workers unable to meet their financial obligations. Real-time access to wages means that employees facing such issues can avoid resorting to high interest payday loans.

And it’s an avenue, recent New York Times report says consumers are flocking more and more, as workers’ hours see their hours reduced, their paycheques shrink and their ability to cover the gap between pay days diminished. According to data published by DailyPay, the number of users who used cash for coronavirus-related reasons increased by around 400% in the first months of the pandemic.

A better option than payday loans

One of the many attractions of such an app for consumers is that it can be cheaper than traditional payday loans, which often come with high fees and interest rates. Based on paying consumers out of their earned income, prepayment apps charge no interest, no fees, no voluntary fees (sometimes called a tip), or fairly modest fees.

The applications, although of a similar type, come in two basic types. The first, like To win and Dave, are available to the public, while others like PayActiv, DailyPay and Rain are only available through employer systems as a workplace benefit. Kroger, Wayfair, Dollar Tree and other large employers have started offering access to these apps during the pandemic.

Walmart was an early adopter long before the pandemic, working with a start-up called same. “We think it’s the right thing to do, and we’re happy to stand up for it,” Judith McKenna, COO of Walmart, told the Times in 2017. She added that workers less concerned with cash flow issues “feel more confident and more settled at work”.

In fact, Walmart employees signed up en masse, even the CEO Jon schlossberg says PYMNTS. And, in recent years, Walmart workers have been far from alone.

According to a The PYMNTS / Mastercard study on workers (stage workers in particular), they want early access to wages. Additionally, the survey found that in the often paycheck-to-paycheck-to-paycheck gigs, gig workers typically want to invest that money in finding pathways to financial stability. Our research found that 39.7 percent would save for emergencies, while others would pay their personal bills (37.6 percent) or buy gasoline for their vehicles (35.6 percent).

Growing concerns

Widespread enthusiasm on the side, The Times also reported that prepayment apps are not without detractors. Class actions have been filed against some companies with consumers complaining that they broke their low-cost, no-cost promises – and that collecting a payday advance ended up costing them much more than expected.

Consumer advocates have noted that while payday advances are an improvement over payday loans and their digital travel insurance rates, they are not safe for consumers who could find themselves in a cycle where they constantly need a payday advance to fill the last advance gap made on their payday.

“It may help them cover their bills and avoid overdrafts and higher cost loans,” said Alex horowitza senior executive with the Pew Charitable Trusts consumer finance project told The Times. “It’s also possible that it leaves them without enough money on payday to turn to them again.”

Notably, however, data from PYMNTS and anecdotal accounts from the NYT indicate that consumers are willing to pay the fees and, in fact, view them as negligible in return for the financial peace of mind that comes with prepayment.

Pay Advance as the future of financial management

The ability to get money into an employee’s hands faster, Jeff Gies, ADP vice president, told PYMNTS, is both important for what he does for the worker right away – puts money in his hands – and for what he can help that worker do in the long run. term.

Because companies should help their employees build long-term financial well-being, he noted, any employee who’s ever sweated their next payday with an empty bank account knows the ability to receive payment. for the work he has already done such an essential tool.

However, he notes that this is also the start of employee engagement with their other available financial tools.

“If you’re really looking to attract people, things like being able to get paid early or access their pay early can be critical,” Gies said. “If you want to drive adoption and create excitement, it’s by creating these kinds of pieces that really resonate with a wide range of employees. “

Ceridian CEO David Ossip made a similar point in her conversation on early compensation for workers with Karen Webster – noting that the two-week pay cycle is a holdover from an earlier time when it was not really possible to pay workers the money they earned because they won it from a technical point of view. This is simply no longer true, he noted, and given that we know that workers need access to funds more than ever before – it is almost incumbent on employers to figure out how to get them.

“It’s very difficult to argue that people should be paid in arrears,” he said. “If you are actually moving to same day pay or continuous pay, that’s the right thing for your employees to do. And once employees understand that this is an option, it will be a big part of where they choose to work.

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NEW PYMNTS DATA: FOCUS ON AI: THE BANK’S TECHNOLOGICAL ROADMAP

About the study: The AI ​​In Focus: The Bank Technology Roadmap is a research and interview report examining how banks are using artificial intelligence and other advanced IT systems to improve credit risk management and other aspects of their operations. The Playbook is based on a survey of 100 banking executives and is part of a larger series assessing the potential of AI in finance, healthcare and others.







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