During a former employment, many years back, when this amazing moment appeared, the secretary in a loud voice stated that the “eagle had landed.” Then as quickly as possible, we all made our way to her office to receive the Payment for our previous month’s employment. If one gets paid once a month, it’s a long time between paychecks, so those initial few days passed a week or so of being without money were awesome. I can even recall when I waitressed and received my own brown envelope of cash that was waiting at the end of each pay period!

These days many workers are compensated electronically, but little else has changed.

Many employees battle to save their money from paycheck to paycheck – a recent study found that over half of workers live with trouble covering their expenses between pay periods, and nearly a third said a surprise expense of less than $500 can make them unable to meet other financial obligations. Yet another study discovered that almost one in three workers runs out of money, even those making in excess of $100,000. 12 million Americans have to use payday loans each year, and annually $9 billion is paid in payday loan fees. The average annual percentage interest rate (APR) for payday loans is 396%.

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

When desire pushes creation

We are on the cusp of a new working relationships which has relationship with pandemics or changing work environments, and a lot to do with how employees want to receive their payroll. Workers, unable to last between paychecks and tired of turning to abusive loans to fill the gap, need to access their hard-earned pay as and when wanted. More than 60% of U.S. workers who have struggled financially between pay periods over the last six months know their financial circumstances would be enhanced if their employers allowed them instant availability to their earned wages, free of charge.

Of course some people could think this a political point, the truth is it is regarding financial wellness. According to SHRM, 40% of employees are not able to pay an unforeseen expense of $400. The report also references Gartner data that found that less than 5% of large US organizations with a majority of hourly-paid workers use a flexible earned wage access (FEWA) platform, but it is thought that this will increase to 20% by 2023.

Why should an employee have to wait for days or weeks to get paid for their time and skills?

Enhancing the worker environment

Providing employees access to their pay on demand will disrupt, maybe even, deconstruct, the way we receive pay and view our paycheck. Currently the potential is observed, and, in some cases, companies use it to differentiate their company and attract new talent. As an example, to encourage interest for recruitment, Rockaway Home Care, a NY care operation, is promoting its flexible payment options on social media.

Others currently provide on-demand pay – when workers finish a shift, they can receive their money as early as 3 a.m. the following day. Via an app, workers may move their pay to a bank account or debit card. Walmart is another example of a company that offers its workers access to their payroll. Workers may access earnings early, up to eight times each year, for free. The reaction from employees has been incredible, and Walmart is anticipating more and more adoption. Meanwhile,
on-demand payroll and Uber both provide their drivers the ability to be paid once they have earned a certain amount.

The change of payroll is not confined to the frequency of payments. Venmo, Zelle, and other app provide flexibility and transaction services that workers currently expect from their payroll. They want to be able to receive their pay when they need to, not every 2 weeks or a monthly cycle. Most of this expectation has come from the emerging economy and Millennial generations – who expect to be able to access the earnings they have earned when they want it.

The increasing rise of workers without bank accounts

In 2018 it was calculated that more than 1.7 billion adults globally don’t have access to a bank account. In the US, a 2017 review estimated that 25% of people 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 make ends meet. In the United Kingdom, there are over one million people without bank accounts.

There are several consequences of having no banking activity. In some cases, it can result in problems receiving financing or acquiring a home; it also presents employers with specific challenges. How do you process payroll if there is no bank relationship to transfer the money into? As a result, employers are increasingly searching for other ways to process payroll, specifically for hourly paid workers. Some are leveraging pay cards, that are loaded virtually every time an employee receives payment. Those pay cards function the way a debit card does, allowing owners to remove cash or shop online.

It’s clear that instant pay is something that is going to be part of the banking health discussion for some time to come.