Podcast: Two Cents' Worth
A staff perk to put payday lenders out of business
This week's Two Cents' Worth looks at how clever technology that gives people access to their wages every day might help keep people from out-of-control debt
Larissa Godfrey is 20 years old, a recent graduate living in Wellington. Over the summer she was working as an intern and she just got a job as a junior programmer. When she and her partner found a new flat, she needed more money for the bond than she had in her bank account. But she didn’t need to go to her parents with that “please help - I’ll pay you back” request, and she didn’t need to take out a loan.
Instead she used an app on her phone that allows her to withdraw wages she’s earned, but not yet been paid for. Money that’s hers ... but also not yet hers.
Godfrey works for PaySauce, the first company in New Zealand to offer a service that's becoming increasingly common overseas, particularly in the US: an app that gives people the ability to access money they've worked for, but because of the “in arrears” way our pay cycles work, hasn’t gone into their bank account yet.
“I never really thought about it until it became an option,” Larissa says. “But it makes sense.” Godfrey and the other PaySauce employees are paid weekly, which is relatively unusual in New Zealand. But still, she works all week and doesn’t get paid until the following Monday.
“Why can’t I use that money?”
Godfrey's employer, PaySauce, is a payroll technology company, launched in 2015. Andrew Barnes - better known as the guy who introduced a four-day week at his company Perpetual Guardian (see our previous Two Cents' Worth podcast) - came on board early as an investor and director.
He and chief executive/co-founder Asantha Wijeyeratne wanted a payroll system that could work from a smartphone without being much more difficult to use than Facebook or LinkedIn.
Beating payday lenders at their own game
But there was also a side agenda: to design add-on technology that allowed employees interest-free access to money they’d earned but not yet been paid. Like Larissa did.
Why? To beat payday lenders at their own game.
Barnes and Wijeyeratne reckoned if payday lenders could use details of someone’s future pay to lend them money at extortionate interest rates, surely employers could do the same thing for their workers, but without ripping them off.
So last year they launched Pay Advance - soon to be renamed PayNow - for PaySauce’s own staff and its payroll clients.
There’s a fee - $3 each time someone accesses their pay early - and businesses that sign up get to choose whether they pay the fee or their employees do (it’s about 50:50 so far).
“We are using exactly the same technology they use and we are solving the same problems,” Wijeyeratna says. They say ‘Your car breaks down, your child is sick, you need money urgently, give us a call and we will give you the money’. What they don’t tell you is the cost in terms of the charges, fees, and exorbitant interest rates.
“We use exactly the same payment mechanism to solve exactly the same problems in a far more compassionate manner.”
There are cashflow implications for businesses that go from paying their workers monthly or fortnightly - even weekly - to allowing them access to their money as soon they earn it.
Still, Wijeyeratna says there’s as much in it for employers as their staff.
“Somewhere between 5 and 10 percent of the working population of this country are resorting to a payday loan every year. That is a staggering number.
“And they are paying anything between 500 percent and 1000 percent interest. Once you get on that spiral there’s little hope of you coming out at the other end with a happy outcome.”
Workers trying to deal with uncontrollable debt are, at best, unlikely to be giving their full attention to the job. That’s not great for your business, he says.
At worst, staff are trying to find any way they can to get the money they need.
“Week in week out there is fraud, there is theft. Are people committing fraud in order to pay back their loans? Yes. Is that happening a lot? Absolutely.”
The other benefit for companies from apps like PayNow in New Zealand and similar ones overseas, Wijeyeratne says, is the competitive edge it gives them when trying to attract staff. This is particularly the case in low-wage, high-turnover sectors like hospitality, aged care and transport.
It’s no surprise that two of the first companies offering immediate pay in the US were ride-sharing apps Lyft and Uber.
Pay-as-you-earn gave them a point of difference against taxi companies, courier firms, and delivery trucks in a competitive and sometimes sceptical market.
Work for us, said Lyft and then Uber, and you don’t have to wait for your money.
Listen to Two Cents' Worth podcast
For more about this topic, listen to this week’s episode of Two Cents' Worth here.
We chart the history of how the world went from paying workers in cash every day, to paying monthly or fortnightly, and why it can take days or even weeks after people actually did the work for them to get their money. And why new technology makes that Oh so 20th century.
We look at how much of a problem living paycheque to paycheque is for people in New Zealand. We discover some of the other cunning ways financial technology companies are using payroll to keep people out of debt. And we introduce you to a species you may not have heard of before - Maggies.
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