This article is our reflection on the recent release of the FCA view on Employer Salary Advance Schemes (ESAS’s).
The FCA raised many interesting points in their recent view on ESAS released on the 30th July. At fastP.A.Y.E we welcome the FCA’s intervention and ongoing commitment to review this market.
These services are becoming more prevalent as companies seek new ways of retaining and rewarding their staff; the various ESAS providers have developed and addressed some of the concerns listed by the FCA. However, there are some providers that haven’t addressed the FCA’s concerns and even some risks that we can foresee that the FCA has yet to raise. For example, can the ESAS provider promote withdrawals to encourage use? Is the ESAS allowed to offer a longer term loan to an employee who has made multiple withdrawals and can no longer pay their rent at the end of the month.
As the FCA points out there are risks to employers and employees if they select an unscrupulous provider. We would like to see some sort of Industry or FCA certification for providers who address all of the potential concerns to make decision making easier for employers.
At fastP.A.Y.E we believe that we already address all of the FCA’s concerns and this is largely achieved because we give control to the employer over all of the key decisions on the system and because we aren’t making a loan.
The FCA’s key concerns are around four risks:
- Lack of Credit regulation:
- Lack of transparency about cost:
- Dependency and repeat use:
- Lack of visibility for credit reference agencies:
As stated, we believe the fastP.A.Y.E model mitigates all four of these.
fastP.A.Y.E is not lending any money, it is giving access to earned salary in the run up to pay day. The money is funded by the employer from an employer bank account and is not loaned by a financial institution which has interest payments to cover. This is fundamental to our model and negates the need for credit regulation and allows us to mitigate the other risks.
There is full transparency on every transaction with fastP.A.Y.E there are no hidden costs or interest rates. It is free for employees on National Minimum Wage and could be configured by the employer to be free for all other staff. The fee does not need to be capped because there is never a situation where there will be a further cost for that same transaction, and of course there are no late fees because it is not a loan. Compared to the price cap of payday loans explained by the Money Advice Service stating; ‘Someone taking out a loan for 30 days will pay no more than £24 in fees and charges per £100 borrowed, and if you don’t repay on time, the most you can be charged in default fees is £15 plus interest on the amount you borrowed.’
So, you can draw your conclusions to which one is better all-round for employees.
When designing fastP.A.Y.E our customers told us about the risk of dependency and repeat use. That is why we gave control over all key decisions to the employer including promotion of the service. The employer sets out how many drawdowns employees can make, when they can make them and how much they can drawdown. Most set a modest cap and single monthly withdrawal which meets the original objective of helping employees get over a short term month end cash flow issue but prevents repeat monthly use. The employer has full visibility of every transaction and can ascertain what will be beneficial to employees with an internal survey or discussions with employees. Our ESAS is part of a financial well-being strategy for employers, not part of the problem.
fastP.A.Y.E is designed to aid employees out of long, costly debt cycles that are difficult to repay. There is no visibility for credit reference agencies because the transaction is not a credit, this might be favourable for many employees as it has no impact on their credit score and long term financial wellbeing. It can also break the reliance of monthly budgeting, which for the lower-paid can once again contribute to difficulty in managing debt and even life’s constant and necessary expenses.
ESAS that allow employers a full overview of transactions and are controlled by the employer, give them an excellent opportunity to spot any patterns, overuse and help individuals by offering further shifts, guidance or support from money advisory services. Above all, it allows employers to strengthen their financial wellbeing strategies and be the lifeline employees might need.
Even though advance wage modules are a new concept, fastP.A.Y.E is created by the team behind the ShopWorks Workforce Management that has helped businesses and employees for the last decade and is committed to offering bespoke solutions that improve efficiency.