Early wage access providers see usage spike during pandemic
- In the wake of the pandemic, some early wage access platforms are reporting increased activity as consumers cover unforeseen expenses.
- With their upfront fees, on-demand pay solutions are promoted as payday loan alternatives, but some say they don’t encourage good financial habits among users.
In March, Dana Kreutzer, like many Americans, faced unexpected expenses due to the coronavirus pandemic. Kreutzer’s adult sons, aged 27 and 30, had just lost their jobs and moved in with her and her husband. The strain on the family budget left her looking for new ways to meet financial commitments.
“Oh my gosh, I had to spend a lot more feeding two grown men,” remarked Kreutzer, 55, a call center worker based in Greeley, Colorado. “I would say my expenses doubled.”
Kreutzer said she needed to find a new source of liquidity to cover unforeseen grocery, gas and utility bills. As a result, she started using PayActiv, an early wage access app offered by her employer. PayActiv, which works exclusively with employers, offers users the capability to take out a portion of an upcoming paycheck prior to payday. For example, if an employee requires funds for an urgent expense (within limits determined by PayActiv and the employer), the staff member can request that amount through the PayActiv app prior to payday, and their forthcoming paycheck is adjusted to reflect that withdrawal. For Kreutzer, a newcomer to early wage access services, receiving a portion of her paycheck early was a necessary means to stay afloat.
Kreutzer joined millions of Americans who use on-demand pay services each year, a number that’s likely grown since the onset of the pandemic. While payday loans can push consumers into a debt trap if they can’t pay on time, digital early wage access providers differentiate themselves by letting users withdraw a portion of their earned wages early for an upfront service fee (typically under $5). Some of these platforms, including DailyPay and PayActiv, link with employers’ payroll systems, while others, including Dave and Earnin, offer the product directly to consumers.
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