Earned Wage Access

Earned Wage Access (EWA), can be referred to as Instant Pay, Earned Income, Early Wage Access, Accrued Wage Access, Salary Advance Scheme or On Demand Pay.^[1] The official UK government term is Employer Salary Advance Scheme (ESAS).^[2] It is a financial service offered to employees, mostly low-wage and hourly workers, being given access to some of their accrued wages before the end of their payroll cycle. Earned Wage Access technology can be implemented in various ways: automatically loaded onto a prepaid card,^[3] deposited via ACH onto a user's existing direct deposit,^[4] or, in a bifocal approach, accrued earnings are transferred into a bank account facilitated by the EWA provider.^[5]

History

Earned Wage Access programs began to reach the market in the 2010s, due to the receding number of Americans who had access to credit and traditional banking. Many of these programs have been compared to the digital payday lenders which they helped to replace.^[6]

In August 2016, Uber pioneered EWA in a partnership with Green Dot by allowing drivers to request their earnings after each drive in exchange for a small payment.^[7]

In July 2018, ADP, the largest payroll provider in America, began offering an EWA solution in their marketplace through DailyPay.^[8]

In May 2019, Lyft introduced a similar feature to its drivers in a partnership with Mastercard.^[9]

In March 2021, Sage Group, the largest payroll provider in the UK, began offering an EWA solution in their marketplace through FlexEarn.^[10]

Repayment

As 'EWA' exists today, users will still receive the entirety of their paycheck at the end of each payroll cycle. At the end of each payroll cycle, however, the advancements made to the user are subtracted from the direct deposit account noted by the user to repay the debt.^[11] EWA is very different than a Payday loan since the repayment of the debt almost always is made without interest.^[11]

Criticism

Earned Wage Access programs have been criticized for their models and have been accused of sending their users into debt. They may also make it more difficult for their users to effectively budget and live within their means.^[12] Some authors have compared Earned Wage Access programs to traditional payday lenders.^[13]

Users of services like PayActiv and DailyPay have become trapped in cycles of having to access early payment to make up for fees and wages withdrawn from the last week's pay cycle.^[14]

Earnin has also been accused of functioning like a payday lender, due to comparisons to its tipping model and traditional interest fees.^[15][16] In April 2019, the company cancelled a feature which linked the size of available loans to the tips users paid to the company.^[17]

States like New York and Nevada have attempted to regulate Earned Wage Access providers by requiring them to be licensed as lenders.^[18]

On August 6, 2019, the New York State Department of Financial Services announced that it would be leading an investigation into whether Earned Wage Access providers were violating state lending and consumer protection laws.^[19]

Risks

For consumers

Consumer risk is highly dependent on the specific strategy the EWA provider chooses to take when offering the advances. Some users have been forced into overdraft as they were allowed to advance more than they received in their paycheck.^[20] Some EWA providers also charge a fee for the advance, which can effectively charge users an APR of over 365% for their advances.^[20]

For EWA providers

EWA providers are held responsible for recollecting the advances they make the consumers. As such, they face risk if they advance too much to the user and risk the user defaulting. All in all, however, EWA providers face dramatically lower risk than other credit providers as the advances they make are backed by hours the loan recipient has already worked towards.^[21]

References

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