Will same-day payment help hourly workers and their employers? – RetailWire
October 23, 2017
Waiting between paychecks can be a big stressor for people with bills to pay and no money to waste. Now, a startup has launched a payment service that claims to better meet the needs of large numbers of Americans living paycheck to paycheck.
The startup, called Instant Financial, allows employees to take half of their daily salary the same day they earn it, according to USA today. Users can withdraw 50% of their salary on a given day, one hour after completing their work. The service sets these limits, according to the article, to prevent impulsive spending and encourage savings. Businesses pay $1 per active user each month to use Instant Financial.
The Instant Finance FAQ states that unlike a payday loan – small, high-interest loans aimed at low-income people – no interest is charged. The Instant Financial service simply gives people the money they’ve already earned, which is then deducted from their next paycheck.
USA today reports that approximately 150,000 workers from 50 companies, including franchisees from Dunkin’ Donuts, McDonald’s, Outback Steakhouse as well as other restaurant, hospitality and retail businesses, have used the service to date. Employers said USA today that they have seen a drop in staff turnover since the service was implemented.
The service could help cash-strapped workers avoid payday loans to cover bills or shopping for food between paychecks, which often leads to snowballing debt.
Payday loans have a notoriously bad reputation. Most payday borrowers pay more in fees than they receive from the loan, spending an average of $520 to borrow $375.
These loans, recently described as “debt trap products” in an article on Marketplace, now face reform. New federal payday loan laws have been finalized and will take effect 21 months after they appear on the federal register. The new laws prohibit the automated withdrawal of money from borrowers’ accounts for debt repayment and change the type of transaction structures allowed.
While Instant Financial caters to hourly workers, a study by CareerBuilder found that 78% of Americans live paycheck to paycheck, including nearly 10% of those earning more than $100,000.
DISCUSSION QUESTIONS: Would employees, especially hourly workers, benefit from implementing free same-day pay services? How will this type of service affect employee recruitment and retention?
“What may prove to be a win-win solution for retailers and service-oriented businesses is to tie performance-based compensation incentives to this program.”
“I wonder if $1 per active user per month plus any earned float is enough to cover Instant Financial’s portfolio losses.”
“It doesn’t solve the problem of a tight budget, it actually exacerbates it.”