Millions of Americans lost work during the pandemic, jeopardizing their financial well-being and increasing the chance they would turn to high-interest, short-term loans to cover day-to-day expenses. Known as payday loans because they are used to fill the gap between paychecks, these loans can carry an annual interest rate as high as 400%.
Consumer advocates decry payday loans as predatory and say they hurt people who are already financially vulnerable. In response, they typically seek to regulate payday lenders. But there is an alternative. Same-day pay, also known as real-time pay or on-demand pay, does away with the traditional gap between weekly, biweekly, or semi-monthly paychecks. For workers struggling to make ends meet, same-day pay can be a lifeline, helping them access much-needed funds as quickly as the same day their money is earned.
This new payment option is benefiting both workers and employers. Workers report significant reductions in stress due to the ability to access funds as soon as they’ve been earned. Companies, meanwhile, say they’ve noticed heightened enthusiasm among staff to put in overtime, as well as improved recruitment and retention rates.
So, how does same-day pay work in practice?
Uber and Lyft have been at the forefront of the shift towards on-demand pay. Lyft’s Express Pay card allows workers to cash out each day as opposed to receiving weekly compensation. Similarly, Uber can push earnings onto a prepaid card. Drivers typically pay a fee for same-day transfers ranging from 50 cents to $1.50. This compares to a $15 fee that a person might face with a payday loan of just $100, or a similar charge for an overdrawn checking account.
Goodwill of Silicon Valley is an example of an organization that goes a step further to provide workers access to ready cash. The nonprofit employer has installed an ATM and allows workers to withdraw half their paycheck or up to $500.
For employers considering a same-day pay proposition, there are three primary options: Third-party providers, launching a service themselves, or using a payment processor like Marqeta.
Third-party providers such as Tapcheck, DailyPay, PayActiv, FlexWage, and Earnin all offer tried-and-tested solutions and work in a range of use cases.
Organizations can also launch same-day pay card programs themselves. This option requires establishing relationships with issuing banks, card networks, and processors, and developing the in-house expertise necessary to comply with the Payment Card Industry Data Security Standard and a raft of regulations. An end-to-end build requires greater investment than working with a modern card issuer and processor, but may make sense for some companies.
However, there are significant advantages to working with a payment processor like Marqeta to develop a solution that is tailored to your business. Modern card issuing and processing platforms enable programmable payments and open payment flows, bringing visibility into previously opaque transactions. Card products can be built quickly with open APIs, tested in a private sandbox, and brought to market in weeks. Programs can include company-branded physical and virtual cards, as well as cards that are tokenized and inserted directly into digital wallets in employees’ smartphones.
Today, same-day pay programs remain relatively rare. However, they could become increasingly common as their advantages to both workers and businesses and implementation options become more widely known.
Photo courtesy of Clay Banks (@claybanks) and Unsplash