EARNED WAGE ACCESS Faster salary payments are reducing the significance of payday
Job losses and other economic stresses are forcing working adults to seek out a new financial product – earned wage access or EWA – in an effort to help them cope.
EWA is a third-party service, typically offered through an employer, that allows a worker to withdraw some or all of the wages which they have earned without waiting for the end of their current pay cycle. The cost of the withdrawal is generally a small fee paid by the worker or subsidized by the employer, and the early withdrawal amount is deducted from the worker’s wages when payday arrives. As with any new financial product, the benefits to users must be weighed against the costs for both users and companies.
In this post we will try to analyze both the costs and benefits, to help financial professionals better understand the big picture. We will leverage publicly available data of providers across the globe but will mainly depend on FINFI’s own data that has been gathered across 20 plus organizations and 5000 plus employees since Sept’22.
Key findings include •
Traditional financial institutions like Banks don’t offer EWA services at the moment but a majority (85%) of salary account holders said that they would use an EWA service if offered by their bank
While employees tend to pay the fees, some employers seeking to recruit job applicants have begun to subsidize the cost, especially when trying to do mass recruitments. The fees are typically fixed and regressive, making low-income users who tend to make smaller requests pay more as a percentage of their withdrawal
Three quarters of users have the funds placed into an account offered by the EWA provider or employer, creating a potential conflict of interest.
Significant class & demographic differences surfaced when users were asked about their payment options had EWA services not been available to them — half (54%) of higher salary earners reported that they would have used a credit card to pay a bill compared to only 5% of entry level workers (Below 30K per month) and 10% of young workers (below 30 year). This lack of access to credit alternatives could influence some users to become more dependent on EWA withdrawals.
Men had a greater ability to borrow from credit cards than women, highlighting a gender inequality that may motivate EWA adoption.
There is a huge impact of income levels on the way EARNED WAGE ACCESS is used by the employees.
High-income adults primarily used the service to balance cash flow, pay bills before payday and make general purchases.
Middle-income users primarily paid unexpected bills, then bills due before payday and to make general purchases.
Low-income users first paid rent, followed by balancing cash flow and paying surprise bills. The difference in rent payment usage was significant, indicating that the service is more of a must-have for low-income users.
Employers can offer the service as a benefit, similar to insurance which tends to give it legitimacy in the eyes of employees.
Most EWA providers limit access to earned wages to 50% to 60%, as a way to deter employees from becoming dependent on early withdrawals. The early withdrawals are settled on payday and no rollovers are permitted, unlike payday loans.
Globally Walmart & now Amazon stand out in the industry because of their sheer size and heavy use of EWA. Walmart first began offering EWA in 2017, when its associates earned on average $9 per hour. Walmart has been using a partnership between Even and PayActiv, with the former offering a financial wellness mobile app in which associates could make EWA requests and the latter enabling the actual money transfers. When the service first launched, Walmart offered its associates one free transfer per quarter, with the option for employees to pay out of pocket for additional transfers. PayActiv has reported that over 500,000 Walmart associates are active EWA users, and Even has reported that it has more than 600,000 associates signed up for its app, which is required for EWA access. This means that five out of six associates who have signed up for the mobile app are accessing EWA on a regular basis. Even has reported that the benefit is the third-most popular one used by Walmart employees after health care and the 401(k).
Employers have the most to gain by providing EWA as most providers don't charge anything to the employers. In some cases employers also get a few additional days as repayment to EWA provider is done a few days after the normal monthly payroll. Employers also get more engaged employees without any liability or cost