Flexibility is a key feature of the modern working world and fast digital payments are a standard feature in people’s personal lives. Many employees must therefore wonder why they’re still paid for their labour on a monthly basis, rather than when it suits them.
If your boiler or car breaks down, for example, it’s unlikely to happen on the day you get paid. Employees on a low income often have little or no savings to cover such unexpected expenses. As a result, they may need to use a credit card, dip into their overdraft or even take out an expensive payday loan to cover the cost.
Even if you take these emergencies out of the equation, outdated monthly pay cycles still mean that people have to budget for 30 days’ worth of expenses with one pay packet. Throw rising utility bills and increasingly expensive grocery shops into the mix, and it’s easy to see how they can quickly find themselves under considerable financial strain. So surely it’s time to rethink the way we’re paid?
This is the logic behind Earned Wage Access. It’s a service that allows employees to access a portion of their earned wages ahead of a traditional bi-monthly or monthly payday (usually for a small fee) with the remainder of their wages paid on the usual date. “It started in the gig economy,” says Sean Pitman, head of product strategy and commercialisation for Visa Direct Europe, “and that’s where it’s most prevalent.”
In other words, as the nature of work has shifted toward more gigs, short-term contracts and freelance opportunities the desire for on-demand pay has grown too. And now this desire is going mainstream. “We’ve seen it [EWA] change from something that’s employee-driven to a business-provided benefit,” says Pitman, “…big companies are now offering this to their staff.”
Feeling the benefit
Many other organisations around the world have introduced similar systems over the past few years. Most are accessed through an app-based platform operated by an EWA provider that plugs into an employer’s payroll system. These fintech firms typically operate in a single country or region; global EWA solutions are currently few and far between.
The US market is more developed than Europe’s – particularly in verticals like hospitality and retail – though as demand for EWA increases this gap should start to close. “It will become mainstream [in Europe],” says Pitman. “It’s a new thing, and as with any new technology it takes time for people to understand how it works and what the benefit is.”
From a business perspective, those benefits include employees who are likely to perform better. If people are dealing with personal finance issues while they’re at work, they’re unlikely to be truly productive.
Research conducted by Visa and Maru in the UK and Spain found that if employers offered on demand payment options, 43% of respondents would definitely recommend the company to potential customers, 42% would definitely do a better job/provide better customer service and 42% would definitely recommend the employer to other potential employees.
Perks like EWA can also demonstrate that an employer cares about their employees’ financial wellbeing. This can create a more positive work environment and a stronger sense of loyalty to the company. In other words, EWA could help businesses to retain valuable people at minimal cost – something that’s particularly important at a time when turnover rates are sky-high.
Indeed, the cost of recruiting, onboarding and training new staff could be higher than introducing an EWA platform that gives people more control over their money. It could reduce a cash-strapped employee’s desire to find another role that might increase their liquidity, for example. A recent Harvard Business School study1 found that employees using a Mexican EWA company, Minu, were 12% less likely to leave their company in the next pay cycle.
A growing market
New regulations may emerge in Europe as the EWA market expands. This is already happening in the US, where Nevada recently became the first state to pass legislation that explicitly addresses EWA services. Under the new law, providers are required to obtain a licence if they wish to operate locally, which should give employees and businesses greater confidence in the trustworthiness of licensed providers.
In the direct-to-employee model of EWA, employees are asked to submit proof of income via the provider’s app and can then access a portion of it in the form of a loan from the vendor. As these services have no connection to their employer, they function more like a payday loan.
Firms that want to explore the employer-sponsored model of EWA essentially have two main options. The first sees the employer covering the transaction fees and any other associated costs on behalf of the employee. The second sees the employee paying a small fee every time they withdraw a portion of their wages.
Currently, the model where the employee covers any EWA transaction fees is the most commonly implemented. But businesses that embrace the employer-led model have an opportunity to demonstrate an additional level of financial care and responsibility for their employees. This can extend to the EWA app itself, which could include financial wellness tools such as budgeting, financial guidance and goal setting. These features can help to demonstrate that the focus of any EWA programme is employee wellbeing, rather than simply convenience.
Regardless of which EWA model employers implement, employees are usually able to choose from several different payout methods, such as a digital wallet2, reloadable card or fast payout option like Visa Direct, a real-time3 global money movement platform that enables funds to be delivered to more than 3 billion debit and reloadable prepaid cards worldwide, including nearly 2 billion in real time3. Soon, payments to digital wallets2 will also be available.
Winning the war for talent
The nascent nature of the European EWA market could give firms that embrace on-demand pay now an edge in the war for talent. Recent research1 by HR software company ADP found that 76% of surveyed US employees said it was important for their employer to offer EWA, for example. This shows how much appetite there is for more flexible forms of pay – and it’s an appetite that’s currently underserved by European employers.
The same ADP survey also found that 93% of surveyed employers who offer EWA believe it helps retain talent. “It’s a differentiator,” says Pitman. “Employees are looking for different kinds of benefits that they can receive by working at a company…and this is a really easy one for an employer to offer that would help them retain talented staff.”
As EWA platforms are integrated with payroll systems and time and attendance modules to calculate an employee’s earnings, businesses should pay close attention to the security credentials of any EWA firm they’re looking to partner with. The vendor should also be fully transparent about the fees they charge, and provide strong customer support to encourage adoption and quickly resolve any employee issues.
In today’s on-demand, highly digital world, which allows us to easily make instant payments through an app, it’s becoming increasingly hard to justify a payroll model that makes life easier for employers rather than employees. So will EWA ultimately become the next big work perk? “Definitely,” says Pitman. “People want more flexibility in all aspects of their lives.”
To help stay competitive and build loyalty among employees, companies of all sizes are indirectly benefiting from Visa Direct’s digital global payment network (which enables EWA providers to provide access to earned wages) to offer fast, flexible payout options. By enabling more avenues for real-time3 earned wage access through or enabled by Visa Direct, businesses have a unique opportunity to provide financial flexibility between pay periods, helping their employees avoid navigating the complexities and costs associated with advances, overdrafts or predatory payday loans.
The future of employment is one where employees can choose how, when and where they want to get paid – regardless of the way they bank or if they even have a bank account at all. Visa Direct is helping companies reach more employees through on-demand pay solutions designed for a range of endpoints, including traditional bank accounts, neobanks, prepaid cards, credit cards and digital wallets2.
With more options for employers to pay, more opportunities are created for people to participate and succeed in the digital economy.
For more information, visit visa.co.uk
Disclaimer: For information purposes only. Earned wage access services are not available in all countries
1 Case studies, statistics, research and recommendations are provided “AS IS” and intended for informational purposes only and should not be relied upon for operational, marketing, legal, technical, tax, financial or other advice. Visa Inc. does not make any warranty or representation as to the completeness or accuracy of the Information within this document, nor assume any liability or responsibility that may result from reliance on such Information. The Information contained herein is not intended as legal advice, and readers are encouraged to seek the advice of a competent legal professional where such advice is required.
2 Visa Direct Wallet capability is under development and not yet commercially available.
3 Actual fund availability depends on receiving financial institution and region.