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The excellent EY consulting report “On-Demand Pay: payroll that works for all, releasing liquidity through on demand pay; the $1tn opportunity” by Matthew Tucker, Michel Driessen, Roberto Stucchi and Asen Tsvyatkov published in September 2020 is probably the first and already the best detailed report into the emerging fintech sector that fastP.A.Y.E is part of. The EY team have produced a report covering 40+ pages including high quality data from a survey of over 4,000 employees. At fastP.A.Y.E we agree with many of the findings and are encouraged to see EY publish such detailed research.
If we at fastP.A.Y.E might be as bold to suggest some additional areas for consideration when the team next update the report, we would suggest looking at the impact of different models of On-Demand pay and the regulatory and employee protection implications of the sector. At fastP.A.Y.E we are already aware from our attendance of various financial well-being panels and speaking to various debt charities that some On-Demand pay providers may be contributing to the problems of employee financial stress. As we outlined in our article on the FCA’s recent intervention, the FCA have a number of concerns including lack of regulation and the risk of creating “dependency and repeat use”. We welcomed the FCA’s comments and believe that regulation for this nascent fintech sub sector is important to protect employees, especially if EY are correct and “Across OECD countries, we estimate that a total of approximately $1 trillion is accrued in employer payroll accounts on any given day” whilst “ 80% of individuals in our research have indicated they would use a form of On-Demand Pay” a market with that much potential could provide an incentive for unscrupulous providers to create “dependency and repeat use”.
The EY report provides a great insight into the number of providers in the marketplace naming around a dozen across the UK and US, we know of several more. In our experience the on demand pay providers arrive in the sector via three routes.
- Stable, profitable, SaaS based workforce management providers such as fastP.A.Y.E’s sister company ShopWorks. These entrants use their existing customer base and skills at integrating into payroll solutions as well as access to staffing platforms to provide a tool that enables employers to provide already earned salary in advance.
- VC backed start-ups with a single product – an On Demand pay app.
- Loan companies, with various models which loan staff money in advance of payday again with a single Salary advance application.
In our experience some of these providers are under pressure from investors to drive the maximum number of transactions. They don’t have a core business to fall back on whilst they take a long-term view of the market. Their model ensures they control the relationship with the employees, can promote their service to them encouraging increased usage and can even cross sell other products such as consolidation loans. This creates incentives which are not aligned to the interest of employee financial well-being and that, in our view, is what is behind the FCA’s concern about “dependency and repeat use”.
Which brings me back to the title of my blog article, Why “employer control” is the most important feature of an “on- demand pay” application. At fastP.A.Y.E we firmly believe that the single most important feature is employer control. The employer has an incentive to look after employee well-being, which is why they provide a salary advance app in the first place – these products are being marketed as beneficial to employers. In fact, the EY report lists many benefits to employers that all result from reducing stress on employees, summarised as “20% of employee turnover is attributable to financial stress and we estimate the combined effect of this to cost employers in the US and the UK c.$300bn annually.” That reduction in stress won’t materialise if the employee becomes dependant on salary advances. We have written before about how employers should be controlling all of the important decisions for an on demand pay solution as part of a financial well-being strategy. We summarise the key decisions as how often, when and most importantly how much. A typical fastP.A.Y.E customer allows a single withdrawal between the 15th and 28th of the month with an average maximum of £124, this solves 80% of employee cash flow problems. The employer should receive reports on repeat users, should have an intervention policy, possibly including a referral program to debt advisors and should control what marketing messages are sent to employees and restrict the resell of additional products. That is why with fastP.A.Y.E our customer, the employer, is always in control.
