Payday is a highly awaited day for any worker, regardless of when it takes place. Its frequency and numbers in a year affect crucial consumer decisions and worker motivation.
The U.S bureau of labor statistics data for 2014 reveals that two-thirds of American workers are paid bi-weekly. Despite this, waiting for the next paycheck, irrespective of a worker’s income, is still problematic.
However, waiting for your paycheck is now a matter of the past, thanks to fintech. In recent years, Fintech startups have stepped up to offer payday alternatives, changing the payment cycle phenomenally.
As most people change the way they work, especially with the emergence of the gig economy, payment cycles have also changed. Most people are increasingly earning money through short term engagements. Even in traditional employment, people can now tap into their earned wages before the next payday.
Market Trends Influencing Payment Cycles
Technology has opened up numerous opportunities by improving the quality and speed of the banking process. Despite this, financial systems are not working in tandem with the improvements. Consumers still get limited options, burdensome fees, and inconvenient access. But with the growth in fintech, clients can now access their earnings in real-time, at lesser charges.
Previously banks would receive 100 percent of a direct deposit paycheck. Things have now changed – for the better. Fintech startups have severely disrupted the traditional paycheck to give the customer a more seamless experience.
Today, digital-first customers prefer the convenience that comes with mobile banking. So, only 18% of bank customers visit a bank branch to access money. It means that the remaining 72% access their money online.
With workers increasingly searching for immediate access to their earned wages, paycheck companies are now offering the necessary respite. The companies provide direct-to-consumer solutions to employees who need quick cash or work as services from employers.
DailyPay and Earnin are fintech developments that offer their customers with advances on their payroll. Apps such as Even provide incorporate financial planning advice in their payroll advance services.
1. Partnering With Employers
Irrespective of a worker’s attachment to a particular job, he/she is unlikely to hold on when broke between paychecks. So, employers have devised ways of keeping their employees comfortable by providing access to their advance pay.
Even allows workers whose employers have opted into its program to withdraw money before their paycheck Instead of interest. Even only charges users a membership fee, which employers can subsidize as a benefits package to its staff. The startup has partnered with leading companies such as Walmart, Noodles & Company, and Sam’s club.
DailyPay works like Even, only that it doesn’t charge a membership fee. The startup charges a service charge of $1.25 per transaction. Popular companies like Burger King and Vera Bradley use the platform to provide their employee with their earnings in advance.
Another payroll platform that has teamed up with employers is Gusto. The company has a Flexible Pay feature that allows workers to receive their pay whenever they want. Employers using the platform only need to switch on the Flexible Pay option, enabling workers to receive their compensation from the last paycheck. With Gusto, every day is just like the contemporary end month payday.
2. Direct To Workers
In some instances, employers may not have opted into a plan that gives employees cash before payday. But workers have another option in Earnin. The platform is available to anyone who has a job and a bank account.
A user who registers with the company needs to connect his/her bank account to get instant pay upon leaving work. Using a smartphone app, a user takes a picture of an electronic timesheet, which Earnin uses to deposit money into the individual’s bank account.
Earnin users can withdraw up to $100 per day of their earned income, and the service is free. Instead of charging, users have the option of tipping whatever amount they wish to keep the community alive.
Once the user’s employer makes a paycheck deposit into the worker’s bank account, Earnin collects the advanced money. Workers from leading brands such as Starbucks, Apple, and Home Depot, have used Earnin.
3. Reduction of Overdraft Fees
The conventional payday schedule forced those who faced financial privation to overdraw their bank accounts, which was more expensive. In fact, due to significant overdraft fees and costly payday loans, borrowers ended up worse than before.
With the emergence of Fintech, the payroll schedule is now open to give earners more spending power. Additionally, with the increased adoption of technology, banks have realized that they are now getting a small percentage of the directly deposited payroll cheques. Consequently, they are now offering similar services and are also charging low overdraft charges.
Also, with several workers living just a month’s pay from their inability to settle their financial bills, Fintech startups provide hope. They have stepped up the pace of the pay cycle and obliterated the dominance of expensive overdrafts and short term loans.
Undoubtedly, Fintech startups have captured a significant market share in the paycheck sector through speed and efficiency. However, it is difficult to imagine a future bereft of banks in developed markets. Banks will still be the repository of significant borrowing limits, but they’ll have to up their game to remain competitive in the dynamic financial industry.