Startups rethink the 2-week payroll cycle by giving users access to earned salaries

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  • Startups are springing up in the United States offering workers access to wages earned before payday.
  • While limits, fees, and eligibility vary, they all offer interest-free payday advances based on hours worked.
  • As alternatives to payday loans, some startups go directly to consumers, while others partner with employers.
  • In August 2019, the New York State Department of Financial Services announced it was conducting a multi-state investigation of payday loan companies.
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Startups are springing up offering alternatives to payday loans and raising millions of venture capital funds in the process. These fintechs emphasize the importance of giving consumers access to earned wages and issuing payday advances without interest charges.

Some of these payroll deals are marketed direct to consumers, promising to help avoid overdraft fees Where FOMO. Others partner with employers who offer access to earned wages as a social benefit.

The products, all of which deal with the availability of earned wages, have varying limits, fee structures, and eligibility requirements. Some offer interest-free, no-charge payday advances and encourage optional consumer contributions, sometimes referred to as “tips”.

Without a declared interest rate, these startups are not regulated like lenders.

But in August 2019, the New York State Department of Financial Services announced it was conducting a multi-state investigation into payday loan companies. The probe, which a DFS spokesperson told Business Insider US is still ongoing, an investigation into whether players in the payday advance industry are collecting illegal interest rates disguised as tips or membership fees, among other predatory practices often associated with payday loans.

The traditional payday loan setup – where consumers can use a future paycheck to secure a loan today – is known for its high interest rates, opaque fee structures, and tendency to trap consumers in costly debt cycles.

Certainly, there is consumer demand for cash advances before payday, which typically falls every two weeks. Things are presenting themselves, and for those who live paycheck to paycheck to paycheck, an easy-to-obtain, high-rate payday loan might be their only source of credit.

But regulators like the Consumer Financial Protection Bureau (CFPB) have proposed rules to protect consumers from predatory payday loans.

In 2017, the CFPB released the Payday Loan Rule, which, among other things, would require payday lenders to determine whether a borrower could possibly repay their loan before lending.

The rule was initially expected to be effective and enforceable in August 2019. Last year, the CFPB postponed the compliance date to November 2020, citing industry concerns about the feasibility of adopting the rule.

Here are five key payday advance startups that present themselves as an alternative to payday loans.

DailyPay provides access to wages earned through employers to increase employee retention

DailyPay is a B2B payday advance product, which works directly with employers to provide employees with the opportunity to cash in on their earned wages. DailyPay integrates with a company’s payroll system so that it can track the number of hours worked in a given pay period, which turns into a qualifying balance for an employee’s withdrawal.

DailyPay pays the money to the employee and is reimbursed by the employer on the next payday. There is no interest, but DailyPay charges a flat fee each time an employee draws on their balance ($ 1.25 for the next day, $ 2.99 for instant transfers) which can be paid by employers, employees or a combination.

The startup has raised $ 22 million to date from investors such as Frontier Venture Capital, RPM Ventures and FinSight Ventures.

Earnin’s Earned Salary product is free, but encourages users of its app to “pay it forward”

Earnin ‘is a direct-to-consumer payroll advance start-up that allows users to access money between paychecks at no charge or interest. The amount a user can withdraw before payday is limited to the number of hours worked. Earnin ‘tracks this via user submitted timesheets, or GPS tracking on a user’s phone.

The Earnin ‘app allows users to draw up to $ 500 per pay period (new users start at a limit of $ 100 per pay period) before receiving their paycheck. Earn links in users’ bank accounts to check direct deposit amounts and payment schedules. It debits the amount borrowed during a pay period from a user’s next direct deposit.

Charging no fees or interest rates, the company claims to be “community supported”. Users are encouraged – but not required – to “pay it forward” and provide “tips” for cash advances.

Win a raised $ 190 million to date with investors such as Andreessen Horowitz, DST Global and Matrix Partners.

Even offers access to a portion of your earned salary, savings product, and budgeting functionality

Even works with employers to give employees access to up to 50% of earned wages, without any interest. It also offers a savings product where employees can set aside part of their salary to allocate it to a savings account managed by Even.

Even’s app offers budgeting functionality and can incorporate recurring invoices into bank account balance projections. Employers have the option of subsidizing the cost of the service, which is a membership fee of $ 8 per month.

even lifted more $ 50 million investors such as Khosla Ventures, Qualcomm Ventures and Silicon Valley Bank.

MoneyLion will pay you the money so you don’t have to worry about it FOMO

MoneyLion’s Instacash product offers its banking customers instant access up to $ 50 at 0% APR. MoneyLion is a membership-based fintech, and while there is a free membership tier for banking, the Instacash product is available for $ 9.99 per month.

If users set up direct deposits to their MoneyLion checking account, they can borrow up to $ 250 and do not have to pay monthly membership fees.

In addition to fee-free checking and high-yield savings, MoneyLion offers loans and launches stock exchange platform that will include the option to buy and sell fractional shares.

MoneyLion, which claims to have over five million customers, raised over $ 200 million investors including Edison Partners, DHVC and Greenspring Associates.

Walmart employee

PayActiv counts Walmart as a customer.

Getty


PayActiv offers access to earned wages in addition to prepaid card products for those without a bank account

PayActiv partners directly with employers to offer an interest-free payday advance. There is a charge of $ 5 for each pay period the service is used. Employers can subsidize the fees, or the cost can be passed on to the employees who use the service.

Depending on the number of hours worked, employees can withdraw up to $ 500 per pay period without interest. Users can also spend their PayActiv balances directly with Uber and Amazon.

In addition to the payday advance, PayActiv offers employees the option of using a prepaid debit card to access wages.

PayActiv counts Chuck E. Cheese, Walmart and Wendy’s among its customers. Similar to DailyPay, PayActiv promotes its product as an employee retention tool.

Investors in PayActive include Acorn Pacific Ventures, Generation Partners and SoftBank. He has raised over $ 33 million to date.

Read more: Neobanks like Chime attract billions of venture capitalists, but unlike most retail banks, they don’t lend. Here’s how they built a business on referrals and debit cards.

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