A worker’s income level doesn’t necessarily correlate to whether they are living pay check to pay check, says CloudPay CEO Paul Bartlett, as shown by the data around income levels and credit card debt.
The inability to address unexpected expenses and balance financial obligations has a detrimental effect on wellbeing.
Q - A lot of people might assume financial literacy and wellbeing are issues that disproportionately impact low wage earners – are they right?
A - It’s an assumption that many people naturally make, but it’s most certainly
a misconception. People at all levels of the pay scale can experience problems. Many earning six figure incomes are struggling to make ends meet and pay bills on some form of credit because, as humans, we adjust our standard of living to our income.
A recent survey of UK working adults by Portafina found that on the seventh day after a payday, 81% of it has already been spent. Our expenses are front-loaded and we're then just hoping our gas doesn't stop flowing, our car doesn't break down and we don't need an emergency dentist visit that month.
Q - What is the escalating impact of this on people’s finances?
A - The truth is many people are living this way and it promotes things like predatory lending, poor credit scores and higher costs for mortgages or car loans, for example.
You can get an introduction to a credit card at a very low initial interest rate but miss one payment by one day and suddenly your effective interest rate can jump to over 25%. The average payday loan charges approximately £15 for every £100 loaned; it’s a hidden crisis. Earned wage access not only provides material cost savings but also a vehicle for improving financial wellbeing.
Q - Why haven’t employers dealt with this issue before?
A - The crisis has endured for a long time but the technology to solve it hasn’t previously existed. Equally, employers don’t always know when an employee has a problem because people are unlikely to admit they are struggling to pay their bills.
The links between financial worries, mental health and absenteeism are well known. Yet it wasn’t until recently that employers could address this problem in a meaningful way. Now the technology exists to make a real difference to financial wellbeing.
Q - How is CloudPay supporting employers and employees in this area?
The first earned wage access solution that can be deployed globally, CloudPay NOW enables multinational organisations to offer access to earned wages in advance of payday. Workers can tap into their own pay balance as early as the day it is earned. In direct contrast to credit card debt, this real-time pay system reduces financial stress for employees and can help eliminate the monthly pay crisis.
Q - How does Earned Wage Access work in practice?
A - We enable both the employer and employee to set parameters. Asking employers to make payments before they are able to would have cash flow implications, so they can set limits such as a percentage of the earned wages that employees can draw against or the number of times they can make a request for a withdrawal.
We also allow employees to set their own criteria. If the employer says they can withdraw 50% of their earned wages four times a month, the employee might actually want a limit of two withdrawals a month at 20% of their earned wages. This means everyone can tailor it to their
own needs.
Q - How has your technology enabled on-demand pay to become a reality?
A - We've been looking very closely at various payment methods globally and how
we can allow people access to their income in a flexible, timely way. One of the problems is that traditional ACH (automated clearing house, a funds transfer system that facilitates payments in the US) payment methods don't facilitate instant payment, so we've had to look elsewhere to provide employees and employers with more options. If somebody needs money on a Friday night and the banks won't facilitate the payment until Monday, that's not going to help them.
We've looked at the card payment rails as an option to pay people directly into their bank because it's instant, secure and really cost effective for the employer. We've implemented different methods of allowing adoption of earned wages and instant payment off the back of it.
Q - What is the ultimate value of earned wage access?
A - We see this as a solution to a global problem that impacts everyone in the workforce, which is why we are so committed to offering it to the world.
Flexible access to earned wages really starts to level the playing field. We've been selling payroll services to organisations for a long time, so we can use our domain expertise and knowledge to enable the global work- force to benefit from this. Employee well- being and financial literacy are challenges that transcend borders. CloudPay aims to fix this globally.
To see on-demand pay in action, visit our CloudPay Now solution page.