Access to earned wages: a sword in the fight against payback and overdraft | DailyPay, Inc.
Access to Earned Wage (EWA) is the fastest growing benefit category, increasingly offered by forward-thinking employers looking to help create a more financially secure workforce. . The technology, typically powered by a dedicated fintech that integrates with an employer’s HR technology stack, allows employees to monitor and access their take-home pay. as they earn it, instead of once or twice a month, which is how often most employers pay their workers.
While the ability to access earned income between paychecks is useful for many, as recent estimates suggest that around 3 out of 4 live paychecks, it is essential for low and moderate income demographics. These populations have the most difficulty making a paycheck last two weeks (or more), and are more likely to resort to dangerous and expensive alternatives like payday loans, or to regularly overdraft their bank account and to pay overdraft fees.
With a new progressive administration in power, banks began to see the writing on the walls in terms of popular sentiment. Overdraft fees (and payday loans) are increasingly seen as predatory and abusive. In recent years, Senator Cory Booker and Congresswoman Carolyn Maloney have sponsored legislation to curb overdraft fees, but historically that effort has failed. This is also the case with payday loans. Despite the well-meaning efforts of consumer activists and state legislatures across the country, payday lending remains an $ 11 billion industry with more storefronts than McDonald’s.
Some banks have recently sought to modestly revise their overdraft policies to avoid a more fundamental change in overdraft practices, and the bottom line is that policy change in this direction will continue to be very difficult. Meanwhile, online gamers are filling the void with cash advances offered to the general public that often carry opaque pricing models, including hidden fees and “voluntary” tips, and fail to address overdraft risk.
However, there is one market force that strikes at the heart of overdraft fees and payday loans: EWA providers. Instead of hundreds of dollars in interest for a payday loan or overdraft fees of $ 35 per transaction, a worker can access already-earned paycheck for the cost of $ 3 or less (or even for free in some circumstances under certain circumstances. some programs).
And historically sellers have insisted that these services are effective in saving people from overdraft fees and payday loans. But consumer activists clashed, asking for more evidence.
This proof has just arrived. AITE-Novarica, a leading market research firm whose analysts have extensive experience in the consumer protection world, recently undertook extensive research with one of EWA’s major vendors to determine whether EWA replaces in fact payday loans and overdraft fees.
The results are amazing. EWA is a remarkably effective substitute for payday loans and overdraft fees. First, almost half of users said they used payday loans or overdraft fees before gaining access to EWA. For reference, only 5% of the public takes out a payday loan, but almost 20% of these EWA consumers report having recently taken out a payday loan. The affected population therefore focuses on those most in need of financial assistance.
AITE research found that 4 in 5 people who previously relied on payday loans or overdrafts were “cured” of their dangerous (and costly) bad habit. And even better, an overwhelming majority of the remaining 20% also reported substantial financial benefits, as EWA allowed them to significantly reduce their use of these expensive products. AITE estimates, for people previously regularly reliant on payday loans or overdraft fees, several hundred dollars per year or more in average expected savings, which is significant money in the pockets of low-income Americans. and who work hard.
Plus, research shows better financial management across the board: less financial stress, better ability to budget and save, and more. And unlike payday loans and overdraft fees, EWA consumers who report using EWA relatively more frequently (eg once a week vs. monthly) report even greater savings. This is because if you regularly pay obscene overdraft fees or payday interest, you may need to access your earned paycheck more regularly to stay out of trouble, compared to someone who overdrafts every now and then on the job. during the year.
This research should mark the start of a radical change in policy circles regarding pay-on-demand. With this news, we now know that EWA is the silent killer we’ve been waiting for, a supremely effective tool in the fight against paydays and overdrafts that remain unfinished.