Earned Wage Access: A Sword in the Fight Against Payday and Overdraft | DailyPay, Inc.

Access to Earned Wages (EWA) is the fastest growing category of employee benefit and is increasingly being offered by forward-thinking employers looking to help create a financially more secure workforce. The technology, typically powered by a dedicated fintech built into an employer’s HR tech stack, enables employees to monitor and access their net pay as they deserve, instead of just once or twice a month, as most employers pay their employees frequently.

While having access to earned income between paychecks is helpful for many, as recent estimates show around 3 in 4 live paychecks to paychecks, it is vital for the low and middle income population. These populations have had the hardest time getting a paycheck in the last two weeks (or more) and are more likely to resort to dangerous and costly alternatives like payday loans or regular overdrafts on their bank accounts and overdraft fees.

With a new, progressive government in power, the banks have started to see the mood of the population on the walls. Overdraft fees (and payday loans) are increasingly viewed as predatory and exploitative. For the past few years, Senator Cory Booker and Congressman Carolyn Maloney have promoted laws to curb overdraft fees, but historically those efforts have been unsuccessful. This is also the case with payday loans. Despite well-intentioned efforts by consumer advocates and state lawmakers across the country, payday lending remains an $ 11 billion industry with more storefronts than McDonald’s.

Some banks have recently tried to modestly revise their overdraft policies to prevent a more fundamental change in overdraft practices, and the bottom line is that such a change in overdraft policy will continue to be very difficult. Online gamblers are now filling the void with cash advances that are offered to the public and that often incorporate obscure pricing models, including hidden fees and “voluntary” tips, that do not solve the risk of overdraft.

At the center of overdrafts and payday loans, however, one market power stands out: the EWA providers. Instead of hundreds of dollars in interest on a payday loan or overdraft fees of $ 35 per transaction, a worker can access salary already earned for the cost of $ 3 or less (or even free in certain circumstances with some programs).

And in the past, providers have firmly believed that these services are effective in saving people from overdraft fees and payday loans. But consumer activists have objected and asked for more evidence.

That evidence has just arrived. AITE-Novarica, a leading market research firm whose analysts have extensive experience in the consumer protection world, recently conducted extensive research at a leading EWA provider to investigate whether EWA actually replaces payday loans and overdraft fees.

The results are amazing. EWA is a remarkably effective substitute for payday loan and overdraft fees. First, almost half of users said they relied on either payday loans or overdraft fees before they had access to EWA. For reference, only 5% of the public take out a payday loan, but nearly 20% of these EWA consumers report that they recently had to take out a payday loan. The affected population is therefore focused on those who are most in need of financial aid.

AITE’s research found that 4 out of 5 people who previously depended on payday loans or overdrafts were “cured” of their dangerous (and expensive) bad habit. And better yet, an overwhelming majority of the remaining 20% ​​also reported significant financial benefits as EWA allowed them to drastically reduce their use of these costly products. AITE estimates that people who previously relied on payday loans or overdraft fees on a regular basis are expected to average several hundred dollars or more per year, which is good money in the pockets of hard-working, low-income Americans.

In addition, the study shows improved financial management in all areas: lower financial burden, better budget and savings ability, and more. And unlike payday loans and overdraft fees, EWA consumers who report using EWA relatively more often (e.g., weekly versus monthly) report even greater savings. This is because if you regularly pay obscene overdraft fees or payday interest, you may need to access your earned salary more regularly to avoid hassle, compared to someone who only overdrafts from time to time during the year.

This research should mark the beginning of a fundamental shift in pay-on-demand policy circles. With this news, we now know that EWA is the silent killer we have been waiting for, an extremely effective tool in the fight against payday and overdrafts that have not yet been finalized.