Americans paid $34 billion in overdraft fees in 2017. I heard this statistic during one of NPR’s Planet Money podcast episodes, “You’re Giving Your Boss A Loan.” Learning more, it turns out a large percentage of this figure was comprised of working individuals, people with jobs that are over-drafting their accounts in between paychecks. In essence, they were incurring huge fees while waiting for money that they had already earned. In an age of on-demand everything, why and how could we have not solved this problem?
I started to think about my own employment. As employees, our contract states that we will wait to be paid until a pre-determined cycle has elapsed. That cycle—monthly, weekly, bi-weekly, twice a month—is different from employer to employer. When you start a new job and switch companies, the amount of time between paychecks could be several weeks—even a month—impacting how and when we pay our bills. What if that didn’t have to be the case?
Same-day paychecks, why though?
It’s not about “having the money,” it’s about literally having the money. Why should your bill be in jeopardy of being paid late because of your paycheck schedule, even though you’ve already earned enough money to pay it now…to pay it on time?
Times like we’re in right now drive the case for same-day paychecks even more. During COVID-19, same-day paychecks have given people the ability to buy diapers or cleaning supplies, that otherwise, they would’ve had to wait and purchase.
Same-day paychecks have the ability to tackle worries like:
- “I’m worried about having enough money to pay the rent.”
- “I hope I’ll have enough money to buy that gift for my daughter’s birthday.”
- “My medical bill payment is going to be late again.”
And instead leave people with confidence:
- “Now I know exactly how much money I have, and I feel in control.”
- “I’m saving money now because I don’t have to pay overdraft fees.”
- “I am able to budget and look forward to the nice-to-haves.”
There are organizations taking steps, today, to mitigate pay period pains. For example, did you know that 40% of all Uber payments are made in cash? Often times many drivers need to get paid multiple times a day in order to have money to buy more fuel and continue driving/working. Uber realized this and has spent the last year developing solutions that cater to their drivers payment needs.
Uber has created two FinTech solutions: a global debit card with enhanced “instant pay” service, essentially functioning as a no-fee bank account, enabling access to earnings in real time. Additionally, the company has rolled out no-cost $100 overdrafts, which helps drivers pay for gas or help put their kids in daycare so they can work during the day.
DailyPay, is striving to reduce financial stress and increase financial stability by giving employees access to their earned pay for only $2.99 for an instant transfer, or $1.99 next-business-day transfer. The employer chooses who pays the fee: themselves, their employees, or a combination of the two. Throughout the COVID-19 crisis, well-known grocery chain Kroger is utilizing DailyPay and providing this benefit to its employees. Ultimately, serving employees with on-demand income benefits the employer through happier employees and higher retention rates.
Going a step further with same-day paychecks
A future iteration of PPP loans could be greatly enhanced by a new platform that directly funds a company’s payroll account. This would create automatic traceability and accountability for that portion of the loan. There would be no scrambling to make one-off modifications to existing payroll systems. Most importantly, employees would be paid as soon as the funds are available.
People who receive same-day paychecks are inherently creating more data points for personal finance products to use. Twenty or more income data points per month, versus one to four in the traditional paycheck model, open the door for much deeper, richer analysis of a person’s spending and buying power. FinTech products would be able to give more-informed advice and do a much better job of predicting when a person might need money moved from their cash reserve to their checking account. Lenders and creditors would have also more insight into a person’s ability to make payments on time. Note that this data would have to be collected with the highest levels of transparency and accountability.
Over 60% of today’s workforce is unsure about their ability to handle economic uncertainty. But even in times of uncertainty, like a pandemic, bills are due, people need to eat and emergencies can happen. Pay periods are not serving the majority of our population. Right now, over 30 million Americans are unemployed. How could same-day paychecks impact those going back into the workforce? Wouldn’t access to money they earned, on day one, have a tremendous benefit?
I’d love to hear your thoughts on same-day paychecks and what FinTech solutions you think will arise due to the COVID-19 crisis. Please comment below, send a message or connect with me on LinkedIn. Let’s keep this important discussion going.