Earned wage access (EWA) services have been gaining popularity in recent years, particularly among key low-wage sectors of the workforce and their employers.
Usually offered through a third-party finance provider, these programmes give staff access to their earned wages before the traditional monthly payday. Unlike payday loans, with which these services are often compared to, this is not a loan or form of credit. The worker accesses only the wages he has already earned, but not yet been paid by his employer.
Typically, it is the HR team that partners with an EWA provider, giving their workforce access to their services. This could be a bank or financial service provider, or, increasingly, a training organisation focused on developing financial literacy skills across workforces and groups not currently well-served by legacy products.
Follow the money
Regardless of the type of provider, none are going to offer their services for free. So one of the early questions about this new product market is: who’s paying for it?
Sometimes it is the employing organisation receiving that invoice. They take on the cost as a unique benefit for their staff, with the aim of adding value to their employer brand and ideally improving retention and talent attraction statistics. But drill a little bit deeper here and this only makes sense in a tiny portion of cases, where legacy systems make the cost of directly providing early access to earned wages greater than using the third party provider.
Much more often, the cost is passed on to the individual worker participating — and this does cause some controversy. Some critics have argued that EWA services are akin to payday loans, which can trap workers in a cycle of debt due to the fees and interest rates applied. Employers should therefore be extremely cautious when signing their workforces up to such schemes, even where participants can choose when and how they opt in. The “benefit” may actually do more harm than good.
But there are also a number of providers offering EWA services as part of a wider package of financial literacy tools. These are often larger start-up firms with stated goals of bringing financial services and advice to otherwise underserved populations. One invested venture capital firm that Chief of Staff Asia spoke with shared that in these circumstances EWA products are often set up as loss leaders and market builders.
They have seen significant future opportunities to work with employers, helping their workforces build greater savvy when it comes to their personal finances. In this way, EWA services, sometimes offered at below the provider’s cost, provide these firms with a foot in the door to target employers.
Take care, everyone, always
Earned wage access is a relatively new financial service, which means it often falls into untested, gray areas of financial and employment regulation. This makes it doubly-important for everyone involved to thoroughly understand the terms, fees and potential risks involved with each and every deal.
More broadly, HR leaders may find some difficult conversations around existing pay levels and processes could be worthwhile. After all, any positive impacts on an employer brand resulting from EWA services and greater financial literacy training will most likely be redundant if staff wages are perpetually leaving those workers in need of early payment.
