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A deeper look into the payroll advance industry

  • Along with 10 other states, New York is looking into the payroll advance industry.
  • Branded as a kinder, gentler version of payday lending, it's possible that the industry's tipping model is more than it seems.
A deeper look into the payroll advance industry

The payroll advance industry has been in the news recently. New York State, along with 10 other states and Puerto Rico, announced an investigation over allegations some firms are skirting usury laws by disguising exorbitant interest rates as ‘tips‘.

Payroll advance, also called early wage access, allows workers to access their earned income outside of a traditional two week pay cycle, a boon to gig and hourly workers. These firms use different models — some work with employers to integrate into their payroll systems as an added employee benefit while others work directly with the end user.

Technologies like Visa Direct and Mastercard Send enable payroll advance firms to push payments directly out to their users and onto a debit card.

Some payroll advance companies typically tout that they charge little to no fees, relying instead on the goodwill of users to leave tips. In a pay what you want model, it’s possible that a small flat fee of $10 or $25 can end up approaching payday loan APR rates.

For example, Earnin encouraged users to leave a tip of anywhere between zero and $14 on a $100 weekly loan. Meanwhile, a $14 tip would equate to a 730-percent APR — nearly 30 times higher than New York’s 25 percent cap, according to the New York Post.

Who are the top payroll advance companies

PayActiv

  • Founded: 2012
  • Location: United States
  • What they do: PayActiv helps to relieve lower-income American employees of financial stress in between paychecks by giving users access to their earned but unpaid wages in a timely fashion. PayActiv also offers a complementary prepaid card connected to users’ accounts.
  • Data points: Over 650,000 employees use PayActiv. It has been estimated that as a result of the company’s enabled access to earned wages, users’ increased their purchasing power by at least $120 million.

Earnin

  • Founded: 2012
  • Location: United States
  • What they do: Earnin allows users to receive up to $100 of their earned pay as soon as they earn it, through a mobile device. Customers can log their work hours into the app, and the service also works for employees who are paid per task, such as Uber and Instacart workers. There is also no service fee, but rather users are encouraged to pay what they think is fair.
  • Data points: In the last month, Earnin has been downloaded 776,711 times, and that rate grows on a monthly basis by 15.38 percent, according to Crunchbase.

Even 

  • Founded: 2014
  • Location: United States
  • What they do: Even partners with employers to provide American workers several financial wellness benefits. Through the Even app, employees have instant access to earned wages, assisted budgeting, and automatic saving. The company works with companies like Walmart, Kronos and Allstate. 
  • Data points: For employees offered Even’s services, 72 percent use the platform every week, and 40 percent use it everyday, according to Even.

HoneyBee

  • Founded: 2016
  • Location: United States
  • What they do: HoneyBee is a certified Benefit Corporation, meaning the organization puts the wellness of their customers as their ultimate goal. The company partners with employers to help their employees prevent financial distress, and provide them with the tools necessary in the midst of financial emergencies. The company also allows employees an extra week’s pay at anytime in the case of unplanned expenses. The company also provides credit coaching, wherein they teach users how to build credit and pay down debt.
  • Data points: According to HoneyBee founder, Ennie Lim, 55 percent of borrowers have identified as female, most of whom are single mothers who are the sole breadwinners of their households.

DailyPay

  • Founded: 2015
  • Location: United States
  • What they do: Through partnerships with employers, DailyPay provides workers with an instant earnings transfer feature, allowing employees to choose when they want to get paid based on wages earned. DailyPay works with companies like Westgate Resorts, Vera Bradley and G4S.
  • Data points: DailyPay has found that employers who use the company’s services experienced a 41 percent reduction in turnover for users, and 73 percent of users say they are more motivated to go to work. 

Flexwage

  • Founded: 2009
  • Location: United States
  • What they do: Flexwage provides middle-lower income employees with on-demand pay in between paychecks, which is transferred into a flexwage account. Users are also provided with a pay card connected to the account, which can also replace paper paychecks and get instant access to earnings on payday. Flexwage works with McDonald’s, Wendy’s, Malone Workforce Resolutions, and many more clients. 
  • Data points: The monthly download growth for Flexwage is 26.53 percent, and the app has been downloaded over 2,000 times in the last 30 days, according to Crunchbase.

Brigit

  • Founded: 2017
  • Location: United States
  • What they do: For a monthly subscription, Brigit enables instant earnings access to workers, helps users manage their finances, and avoid overspending, as well as debt. Brigit works with major companies, such as Amazon, Shell and Walmart.
  • Data points: Brigit has over 300,000 members. Last March, Brigit reported covering 35,700 unexpected low balances in one month. 

Branch

  • Founded: 2015
  • Location: United States
  • What they do: Through the Branch app, employees can budget their expenses, keep track of their bills, enable instant access to a portion of their earned wages, and foster their growth within the company by displaying their skillset. Branch provides benefits to Target, Life Time Fitness, and Unilever, though the company hasn’t said which companies it provides payroll advance to.
  • Data points: A Branch survey of over 3,000 hourly employees across industries found that 80% experience some degree of pay variance weekly and 75% have less than $500 saved for an emergency.

Wagestream

  • Founded: 2018
  • Location: United Kingdom
  • What they do: Wagestream allows employing partners to provide their workers to instantly transfer their earned wages into their own accounts. 
  • Data points: Research shows that shift workers choose to work 22 percent more hours on average once enrolled in Wagestream, according to EU Startups. The company covers over 120,000 employees
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