Nov 4, 2021
Imagine this. You’ve spent about 45 minutes wandering the aisles of your local shops picking up food and other essential items.
But when you get to the till to pay for everything, you find out you don't have enough cash.
It’s not a pleasant situation, but it’s all too common for many people around the world.
Earned Wage Access (EWA) — also known as on-demand pay — helps people avoid these very situations.
Demand for EWA seems to be growing. A fifth of companies that employ hourly workforces will offer EWA by 2022, according to a recent estimate by analyst firm Gartner.
EWA is a modern twist on payday loans. EWA providers claim that it avoids most if not all of the pitfalls of old-fashioned payday lending which saw many of its users hit with astronomical fees.
EWA definitely has benefits for employees and employers alike.
Just as EWA may help with recruitment, it could be a useful employee retention tool too. In other words, it can help companies keep great staff. HR research shows employees stay with companies for benefits (30%), pay (29%) and job security (27%).
And the typical employee who uses EWA may be in a situation where their expenses often go above their income. They may be using EWA programs, instead of using predatory payday loans. That’s definitely a positive.
But is EWA really all that different from payday lending? For years, unscrupulous payday lenders took advantage of desperate workers by ‘floating’ wage advances to them ahead of payday. These lenders still exist in many markets and it’s a deeply unfair system.
While providers of EWA are quick to point out that it boosts retention, it’s not clear yet how true these claims are. In fact, EWA may even make some employees dependent on the product, locking them into low-paying jobs with little prospect of moving somewhere better.
Then there is the fact that some EWA providers charge fees to the worker. Is it really fair for low-paid workers to have to pay to get paid? Probably not.
So what’s the final word on EWA? Lenders need to think carefully about how they structure these products and who they partner with to deliver them. That’s because EWA is a short-term solution for a much bigger and more stubborn problem: low global wages.
That’s why lenders and EWA providers must be crystal clear that they are providing this product to businesses and employees who genuinely find it useful. And credolab can help you assess this.