The 1.4 million employees of Wal-Mart Stores will soon have a new tool to help them manage their income as well as provide on-demand access to earned wages ahead of payday.
The retailer said it partnered with technology startups Even and PayActiv to create a mobile app which provides financial wellness services to its U.S. employee base. These are the first tools for personal money management, financial planning and on-demand access to earned wages the retailer has made available to its workforce.
“Money management is something people across every income level struggle with, in large part, because they don’t have access to good tools,” said Even CEO Jon Schlossberg. “In real life, if you want to get ahead, you’ve got to make a financial plan, and also have a way to fix the plan when it breaks. Even offers tools for both, together in one app. Working with Walmart and PayActiv gives us the opportunity to put these powerful, easy-to-use financial management tools in the hands of millions of hard-working Americans.”
The retailer said the mobile app allows an employee to automatically plan ahead for bills, set up savings goals and eliminate the work of figuring out how much money can be spent. One of the features of the service known as “instapay” allows employees to draw from their earned wages ahead of the scheduled payday. For instance, should a worker have a car repair bill for $120 which is owed four days ahead of payday, the worker can see how much of their earnings has accrued and then request an “instapay” draw for the $120 which is automatically transferred to their checking account.
The retailer said the Instapay service via the app is available eight times a year. Wal-Mart is covering the entire cost of the service subscription for its U.S. employees, including Sam’s Club and eCommerce. Wal-Mart said this tool will provide workers greater flexibility to handle unexpected expenses and avoid overdraft fees or high-interest credit options. The retailer said should the workers need to use Instapay more frequently, it will subsidize the additional costs on their behalf.
“Traditional approaches to workforce well-being often focus solely on physical health, but we know from listening to our associates that financial well-being is just as important. We’re investing to give our people financial tools that help provide more stability in their lives, which we believe will empower them to be all they can be when they are at work serving our customers,” said Jacqui Canney, chief people officer at Wal-Mart.
Joel Doelger, director of community relations and housing counseling at Credit Counseling of Arkansas, said a financial tool that helps employees manage their spending relative to earning is a nice benefit because it provides transparency of cash flows at a glance so workers know at all times what they can spend. That said, he also warned borrowing pay ahead of payday can be a slippery slope for some consumers and can become a trap if the option is used too frequently.
“This seems like a great tool Wal-Mart is offering, but the borrowing ahead option is a bit concerning. On the one hand, it’s great if you have a real emergency, but it can be a double-edged sword. People who borrow ahead too often dig a hole they can’t get out of,” Doelger said.
He hopes the app provides some sort of warning and education piece for users about the risks of borrowing against future income. He said if the app can show users what their pay will be after the withdrawal and minus their upcoming bills then consumers are able to see if they can afford to take the early payment.
“It’s nice Wal-Mart isn’t heaping on the fees for early withdrawal like payday loans, but this option does reduce future income and that can be problematic for those living from paycheck to paycheck,” Doelger said.
The Pew Charitable Trust studied the impact of payday loans over the past five years. The 2016 report indicated 12 million Americans take out payday loans each year, spending $9 billion on loan fees. Despite the unattractiveness of these high-interest loans, consumers still seek them. Pew found the average payday loan borrower earned $30,000 annually and 58% had a hard time meeting their monthly expenses.
“I hope the app does warn consumers about the riskiness of the borrowing ahead, regardless of whether there is a fee or not. Dangling easy money now can be very tempting if consumers are not aware of the impacts of less money down the road,” Doelger said.