An Employee Perk To Put Payday Lenders Out Of Business
Podcast: Worth two cents
This week’s Two Cents’ Value explores how clever technology that gives people access to their wages every day can help save people from debt spiraling out of control
Larissa Godfrey is 20 years old, just graduated and lives in Wellington. Over the summer she worked as an intern and just got a job as a junior programmer. When she and her partner found a new apartment, she needed more money on the loan than she had in her bank account. But she didn’t need to go to her parents with this “please help me – I’ll pay you back” request, and she didn’t need to take out a loan.
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Instead, she used an app on her cell phone with which she can withdraw her earned but not yet paid wages. Money that is hers … but not hers either.
Godfrey works for PaySauce, the first company in New Zealand to offer a service that is becoming increasingly popular abroad, especially in the US: an app that allows people to access the money they worked for but has not yet entered their bank account because of the “backlog” of how our pay cycles work.
“I never really thought about it until it became an option,” says Larissa. “But it makes sense.” Godfrey and the other PaySauce employees are paid weekly, which is relatively unusual in New Zealand. Nevertheless, she works all week and is not paid until the following Monday.
“Why can’t I use the money?”
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Godfrey’s employer, PaySauce, is a payroll technology company founded in 2015. Andrew Barnes – better known as the guy who introduced a four-day week to his Perpetual Guardian company (see our previous podcast worth two cents) – came on board early as an investor and director.
He and CEO / co-founder Asantha Wijeyeratne wanted a payroll system that would work from a smartphone without being much more difficult to use than Facebook or LinkedIn.
Beat payday lenders at their own game
But there was also a side program: the development of an add-on technology that would give employees interest-free access to money they had earned but not yet paid for. Like Larissa.
Why? Beat payday lenders at their own discretion. PaydayChampion provides an actual payday lenders.
Barnes and Wijeyeratne opined that if payday lenders could use details about someone’s future wages to lend them money at inflated rates, employers could certainly do the same for their workers, but without ripping them off.
Last year, for example, they introduced Pay Advance – soon to be renamed PayNow – for PaySauce’s own employees and its payroll customers.
There’s a fee – $ 3 each time someone accesses their salary early – and companies that sign up can choose to pay the fee or their employees (around 50:50 so far).
“We use exactly the same technology as them and solve the same problems,” says Wijeyeratna. You say “Your car broke down, your child is sick, you urgently need money, call us and we will give you the money”. What they don’t tell you is the cost in terms of fees, fees, and exorbitant interest rates.
“We use exactly the same payment mechanism to solve the exact same problems in a much more compassionate way.”
There is a cash flow impact for companies that pay their employees monthly or fortnightly – even weekly – until they give them access to their money as soon as they make it.
Nevertheless, Wijeyeratna says that there is just as much in it for employers as it is for their employees.Asantha Wijeyeratne. Photo: Nikki Mandow
“Somewhere between 5 and 10 percent of the working population in this country takes out a payday loan every year. That’s a frightening number.
“And they pay anything between 500 and 1000 percent interest. Once you get on that spiral, there is little hope that you will come out on the other end with a happy outcome. ”
Workers trying to deal with uncontrollable debt will find little work at best. It’s not good for your business, he says.
In the worst case scenario, employees will try to find every way to get the money they need.
“Week after week there is fraud, there is theft. Do people commit fraud to repay their loans? Yes. Does that happen a lot? Absolutely.”
The other benefit for businesses from apps like PayNow in New Zealand and similar overseas, says Wijeyratne, is the competitive advantage they give them in recruiting. This is particularly the case in low-wage and high-volume industries such as hospitality, elderly care, and transportation.
It’s no surprise that two of the first companies to offer instant pay in the US were ride-sharing apps Lyft and Uber.
Pay-as-you-earn set them apart from taxi companies, couriers and delivery vans in a competitive and sometimes skeptical market.
Work for us, said Lyft and then Uber, and you don’t have to wait for your money.
Listen to the Two Cents Worth podcast
For more information on the subject, check out this week’s episode of Two Cents’ Worth Here.
We tell the story of how the world went from paying cash every day to paying monthly or fortnightly, and why it can take days or even weeks for people to get the job done before they get their money. And why new technology is what makes the 20th century so oh so.
We look at how problematic it is for people in New Zealand to live from paycheck to paycheck. We’re discovering some of the other smart ways that financial technology companies are using payroll to keep people out of debt. And we’re introducing you to a species you may never have heard of – Maggies.