As COVID-19 exposes all the ways in which Americans are struggling financially, many employers find themselves wondering: “How can I help?” After all, data shows that companies that invest in workers’ financial resilience will fare better in the long term. One way to help employees is to offer them an earned wage access, or EWA benefit. By doing so, employers can reduce uncertainty for their employees, and help them avoid harmful alternatives like overdraft fees and payday loans. But like most employee benefits, there are lots to choose from. In this post, we’ll provide some guidance for business leaders who know they want to help their employees, but aren’t sure where to start.
If you’re researching EWA providers for your workforce, one of the first things you’ll notice is that there are quite a few options — and it can be hard to tell how they differ from one another. Some EWA providers offer just one feature (access to earned wages), while others have a few add ons, or even a robust money management platform. The way the product is structured is closely related to the provider’s business model, as well as its pricing. And all these variables have impacts on the people who are using EWA: your workforce.
With a membership model, the employee pays one flat fee per month no matter how many times they use EWA. If there is more than one way the employee can access their funds, the membership fee covers all available options.
The transaction model means an employee pays a fee every time EWA is used. Fees can vary depending on how quickly the employee wants access to their funds; for example, next-day transfer instead of instant. “Tipping” models also fall into the transaction model category, with variable fees and limited transfer options.
A pay card model is sometimes used to characterize EWA as “free.” While it’s true that taking an advance is free, there are usually hefty fees for receiving EWA funds in an external account or moving money from the debit card to an external account. Not all pay card EWA providers offer cash pick-up options, and some rely on fee-based ATMs for cash access.
While there are many differences between these models, there’s one important thing to keep in mind. When using pay card and transaction model EWA products, employees end up paying higher costs — sometimes much higher — than they would with a membership model.
This is plain to see from the publicly reported data from multiple EWA vendors, which indicates that most employees use EWA about once a week. In this instance, a transaction model vendor would make $14.95 in fees from an employee over the course of the month. A pay card model provider can take as much as $24.95 in fees. But an employee using a membership model EWA product would only pay the flat rate for the entire month. In Even’s case, that would be $8.
Why are the costs for transaction and pay card model providers so high? It’s a matter of incentives. Providers using the transaction model are incentivized to keep employees taking wage advances as frequently as possible, so they can maximize fees. Transaction model EWA products may also include “tipping,” which gives employees the illusion of choice. But with limited guidance on what an appropriate tip amount looks like, tips can simulate a high fee structure and approach payday loan rates.
Meanwhile, pay card model EWA providers require employees to use the provider-issued debit card in order to access their wages instantly. If the employee wants to receive their wages in a different account, the provider can charge a hefty fee. This creates more hurdles for employees when it comes to spending their wages: To avoid fees, they’re forced to use the EWA provider’s card or experience fees to transfer money to a different location. This adds further complexity to what may already be a tenuous financial situation.
With transaction and pay card models, the more employees use EWA, the more the provider profits, so they’re incentivized to encourage more frequent use. This is what ends up costing employees more money.
A membership model is different because it doesn’t incentivize providers to encourage more EWA use. It’s not that providers using this model make their EWA hard to access or use. Instead, they also provide tools and support that help employees gain financial confidence and stability, thus being able to reduce their reliance on EWA in the long run.
So how does this type of provider make money if it’s not incentivizing higher EWA use and charging fees for it? For a membership model EWA business to be sustainable, its non-EWA features must provide enough value for employees to want to keep using — and paying — for the app. In other words, a membership model provider’s business has to be aligned with employees’ best interests, not what makes the most money.
The first step is understanding why you’re looking for an EWA solution in the first place. Most employers are looking to solve for the issue that employees are struggling to make ends meet, and this is negatively impacting the business. If the goal is to help employees progress beyond a point of financial stress, you’ll want to find the solution that offers just that: progress. To determine which vendors fit the needs of your business and your employees, start with these questions:
We designed Even’s product and payment structure to be a membership, and our membership fees are the only way we make money. With Even, your employees never have to pay transaction fees or interest, and we never sell their data. Why do we take this approach? Because we believe a membership is the only business model that truly aligns Even’s incentives with your employees’ financial well-being. You can learn more about our pricing, and get in touch with us, on our website.
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