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ARE INSTANT PAYCHECKS THE METHOD IN THE FUTURE?

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In a former employment, a few years ago, when this glorious day arrived, the
secretary in a clear voice announced that the “eagle had landed.” rewards of our
previous month’s employment. When one gets compensated once per month, it’s a
long time between payment, so those initial few days passed a week or so of
being without money were great. I can even remember when I waited tables and
collected my small brown packet of cash that was waiting at the end of each pay
period!

Today most workers are compensated electronically, but little else has changed.

Most people suffer to save their money from paycheck to paycheck – a recent
study found that over 50% of employees live with trouble covering their bills
between pay periods, while almost a third claimed a surprise cost of around $500
may make them unable to pay other financial obligations. Another study found
that almost one in three employees run out of cash, even those making in excess
of $100,000. 12 million Americans must use payday loans during the year, and
each year $9 billion is collected in payday loan fees. The average annual
percentage interest rate (APR) for a payday loans is 396%.

Based on PayActiv, over $89B are paid in charges by the 90M workers living
paycheck to paycheck, which is the majority of the US population. Instant
payroll can each year put over $25B into workers accounts, just from savings
from insanely high APR costs.

When desire drives innovation

We are on the verge of a new world order that has connection with pandemics or
shifting work environments, and a lot to do with how people want to receive
their remuneration. Employees, not able to last between paychecks and tired of
turning to abusive loans to bridge the gap, need to access their earned pay as
and when needed. global payroll than 60% of U.S. employees that have struggled
financially between pay periods in the last six months believe their financial
circumstances would be enhanced if their employers allowed them immediate access
to their earned wages, free of charge.

While some people might consider this a political issue, the truth is it is
about financial wellness. According to SHRM, 4 out of 10 workers are unable to
pay an unexpected cost of $400. Their report additionally refers to Gartner
information that discovered that less than 5% of major US companies with a
majority of hourly-paid workers use a flexible earned wage access (FEWA)
solution, yet it is thought that this will increase to 20% by 2023.

Why should an employee need to wait for days or weeks to receive pay for their
time and ability?

Improving the worker experience
Giving workers access to their money on demand might disrupt, perhaps even,
change, the manner in which we receive pay and review our paycheck. Currently
the potential is observed, and, in many cases, companies are using it to
differentiate their company and attract new talent. As an example, to encourage
interest for recruitment, Rockaway Home Care, a New York care facility, is
promoting its flexible earning options on social media.

Others currently provide on-demand pay – where workers finish a shift, they can
access their money as soon as 3 a.m. the following day. Using an app, workers
can move their salary to a bank account or debit card. Walmart is another
example of a business offering its employees access to their payroll. Employees
may access pay early, up to eight times each year, without cost. The feedback
from workers is amazing, and Walmart is expecting more and more adoption.
Meanwhile, Lyft and Uber each provide their workers the ability to receive pay
once they have earned a specific amount.

The metamorphosis of payroll is not limited to the amount of payments. PayPal,
Zelle, and other app offer flexibility and transaction services that workers now
expect from their paycheck. They want to be able to receive their pay whenever
they need to, not every 2 weeks or on a monthly cycle. Much of this expectation
has come from the gig economy and Gen Z generations – who expect to be able to
receive the money they have earned when they want it.

The increasing rise of workers without bank accounts
In 2018 it was estimated that more than 1.7 billion adults globally don’t have
access to a banking relationship. In America, a 2017 review estimated that 25%
of households are either unbanked or underbanked – 7% unbanked and 17%
underbanked. The report discovered that people who either don’t have a bank
account, or have an account, but still use financial services outside the
banking system like payday loans to survive. In the United Kingdom, there are
over one million people without bank accounts.

There are many results of having no banking history. In some cases, it may
result in difficulty receiving financing or acquiring a house; it also presents
employers with specific issues. How do you process payroll if there is no bank
relationship to transfer the money into? As a result, employers are quickly
searching for alternative ways to process payroll, specifically for hourly paid
employees. Some are utilizing pay cards, that are topped-up electronically each
time a worker receives payment. Those pay cards function the way a debit card
does, allowing holders to remove cash or shop online.

It is clear that on-demand payroll is something that’s going to be a part of the
banking health conversation for some time ahead.



Public Last updated: 2023-06-26 04:19:34 PM

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