Consumer use of pay-advance services rises amid layoff fears

Just like businesses are trying to secure financial life-lines, consumers who have early access to pay are tapping it more readily in the world of COVID-19 concerns, according to Jeanniey Mullen, chief innovation officer at DailyPay, a fintech company based in New York City.

“We have definitely seen more businesses realize the value of the daily pay benefit. Some businesses that were in the process of getting set up with DailyPay asked to expedite the process so their employees could leverage the benefit during the height of the pandemic,” Mullen told Talk Business & Politics.

DailyPay offers users the ability to tap some of their wages or earnings ahead of the normal payday. She said DailyPay has seen total users spike to a 43% usage rate this past week, which was up 400% from the prior week, as government shutdowns started to be put into place. DailyPay has a client base of 2 million people. Mullen said as consumers have stocked up on their supplies, the usage number has subsided to around 20% more than normal.

“As we approach the end of the month, we’re starting to see more people needing to access their funds early to pay upcoming bills, which could lead to another increase,” she said.

Mullen said usage has decreased among its hospitality clients as many of the workers have been displaced and are now filing for unemployment. Independent contractors who provide ride-sharing services or food delivery and retail workers are among the groups getting more hours and are now able to tap the service more often.

Walmart said Wednesday it is making early-pay access available to hourly workers through June with no transaction costs.

“In this unprecedented time, associates have asked for earlier access to their wages, so they can continue to plan and focus their time and energy where it matters most – on their safety and the safety of their families. By providing instant access to earnings every week, this new option will help provide more cash in hand for associates sooner than the normal two-week pay period,” said Dacona Smith, chief operating officer for Walmart U.S.

Smith said the service also comes with a third-party mobile app that offers financial wellness tips to help with budgeting and saving. He said employees who use the service can get up to 50% of their earned wages on a weekly basis.

PayActiv, a fintech company located in San Jose, Calif., reports a 5% to 6% uptick in pay-advance usage in recent days. PayActiv works with about 1,000 employers and has more than a million end-users. PayActiv serves employees of Walmart, Uber, Visa, PizzaHut and Wendy’s.

“People are lining up to buy groceries and for a broad cross-section of society in America, maybe 70-80 million people, they don’t have the extra cash to buy in bulk,“ said PayActiv CEO Safwan Shah. “Employers are realizing this is a necessity because there are so many people living paycheck to paycheck. Whatever they’ve earned today or yesterday, they might need it to buy groceries because the need is today and now. Two weeks is too long, or five days to payroll is too long.”

PayActiv and DailyPay have waived the normal fees which range from $1 to $3 for next-day access during this crisis.

Consumer finance advocates warn consumers about taking pay early. While this not a pay-day loan at a high-interest rate, the warning is it’s dangerous to live on the financial edge borrowing today from tomorrow. Lauren Saunders, associate director of the National Consumer Law Center, said this crisis will not be over in one paycheck cycle and borrowing from tomorrow will create a hole to fill later, making consumers less able to meet future obligations.

A 2019 report from the American Payroll Association, found 74% of employees in America would have financial difficulty if paychecks were delayed for one week.

Mullen said there is a high percentage of people living paycheck to paycheck and this underscores the need for more employers to provide daily-pay options especially during times of uncertainty.

Economists at Goldman Sachs have forecast the economy will contract over the first half of this year which the Economic Policy Institute estimates will translate into the loss of 3 million jobs by June. Within Arkansas, specifically, EPI estimates job losses of 42,629, mostly in leisure and hospitality which provides about 24.1% of the state jobs.