At Work

Companies offer cash-strapped employees daily pay cards and other flex-pay options as a lifeline

Key Points
  • The shift from paper checks and direct deposit to newer, more flexible electronic payments such as payroll cards, PayPal, DailyPay and others has been unfurling for years.
  • Now the pandemic may well push these newer payment arrangements to the forefront.
  • DailyPay, which allows workers to take out pay they've already earned whenever they need it instead of waiting weeks for their next payday, saw a 400% jump in use between March 14 and March 17.
  • Companies such as ADP, Fiserv, Green Dot and others are rolling out pay cards and virtual bank accounts.
Jeff Greenberg | Universal Images Group | Getty Images

Out of all the many concerns that Americans now have related to COVID-19, more and more are worrying about getting paid, and quickly.

Earlier this month, Desiree May, an employee at Loop Neighborhood convenience store and gas station in San Francisco, used DailyPay to get access to her pay to buy supplies related to COVID-19.

"I needed money to buy supplies — masks and hand sanitizers — so I could do my job at a gas station and safely support the workers needing to be out," she said.

May is far from alone. The shift from paper checks and direct deposit to newer, more flexible electronic payments —such as payroll cards, PayPal, DailyPay and others — has been unfurling for years. Now the pandemic may well push these newer payment arrangements to the forefront.

DailyPay, which allows workers to take out pay they've already earned whenever they need it instead of waiting weeks for their next payday, saw a 400% jump in use between March 14 and March 17 as workers rushed to access their money early to stock up on food, cleaning supplies, wipes and other products before shelter-in-place rules took effect.

"If everyone is waiting until the 15th to 30th, everyone is going at the same time to the store and a lot is sold out," said Jeanniey Mullen, chief innovation officer at DailyPay. Mullen said that starting earlier this month, the No. 1 reason for withdrawals has been related to COVID-19, whereas transportation costs — money for gas to get to work, bus fees or Uber — are the primary reason. The company, which typically charges a $2.99 fee for employees to get access to their pay immediately, or $1.99 for the next business day, has waived next-day fees amid the crisis.

Demand for flex options rise

The current crisis has put a spotlight on the limitations of paper checks and direct deposit. Paper checks come with concerns about lack of personnel in the office to print the checks, mail-delivery delays, as well as concerns about potential contamination if someone sick handles the paper. Direct deposit is relatively slow, forcing employees to wait days to actually take out their money.

While many Americans are losing their jobs and worried about getting access to their money as soon as possible, some employers are also facing challenges — in particular, ramping up their workforce. Mullen noted that some of DailyPay's supermarket customers are battling to keep their employees in stores to keep up with demand.

"It's a battle to get people," she said. To attract workers, she claims that some supermarket and health-care centers are promoting DailyPay so employees can get paid their first day on the job.

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Rockaway Home Care, based in Queens, New York, recently promoted DailyPay on their Twitter as a benefit to their employees. The company, which has about 1,000 full- and part-time home health aides out in the field, has seen an uptick in interest in more flexible pay arrangements — namely, getting paid immediately — amid the current crisis.

"We were wondering about what is going to be the immediate and three- to six-month fallout from COVID-19," said Sean Hirsch, executive director at Rockaway Home Care, from loss of patient lives to additional costs of onboarding new employees or employees refusing to go to cases. "What we've seen, when we offer this benefit, people are motivated to work. The reality is this virus doesn't mean the expenses around you stop," he said, noting that applications have increased.

Changing expectations 

DailyPay is one of many pay providers that are shifting to more flexible, personalized pay arrangements. While direct deposit is still the dominant form of payment, with 80% of employers and employees in North America saying they prefer it, nontraditional payment methods have been making inroads. According to research by ADP, nearly half of employees in North America are willing to accept nontraditional payment methods, such as mobile payments, digital platforms or pay cards. 

Companies such as ADP, Fiserv, Green Dot and others are rolling out pay cards and virtual bank accounts. There's also Zelle, debit accounts linked to Venmo or PayPal, and many other competitors. Bank accounts are no longer required for some of these alternative pay arrangements.

Venmo and PayPal, for instance, allow users to keep money in the app and then pay for things, also through the app. Funds can also be transferred to a bank account. Pay cards act like prepaid cards or debit cards, which can be loaded electronically each time an employee gets paid. Employees can then use the pay card like a debit card, at an ATM or to make online purchases. 

What you will see is a shift from a weekly or biweekly payment cycle to a more employee-centric model, moving to daily or on-demand payments and greater flexibility in payment schedules.
Doug Politi
president of compliance solutions at ADP

Initial demand for things such as payroll cards came from lower-income workers who are more likely to be unbanked, or without a bank account. But now younger workers are driving demand as well. 

"Millennials and Gen Z don't have banking relationships. They are not at all tied to walking into a bank branch; they are not familiar with that; they've never written a check and don't know what to do with one," said Chris Ruppel, founder of Green Dot's Rapid paycard business, which offers payroll cards and debit accounts. For this group, payroll cards are "really more of an experience and lifestyle choice, rather than one driven by economic necessity," he said. 

Millennials "think of cash as their phone, and their phone as their bank. This is driving demand for nontraditional offerings," said Doug Politi, president of compliance solutions at ADP.

ADP's Wisely is a reloadable account that comes with a card and mobile app. Wisely Direct gives users a fast and easy way to get pay and other sources of income.
ADP

Part of the shift in expectations from younger users may stem from the growth of the gig economy, which pays after a job is done, rather than in monthly or biweekly periods, said Politi. 

"It won't be one-size-fits-all. What you will see is a shift from a weekly or biweekly payment cycle to a more employee-centric model, moving to daily or on-demand payments and greater flexibility in payment schedules," he said.  

For employers, the appeal of payroll cards and other electronic payment methods is that they can easily be distributed to new employees and topped up remotely. Paper checks have been falling out of favor for some time now, and with administrative staff likely working from home during the current pandemic, employers face additional challenges writing and mailing paper checks. 

Competition from fintech mounts

This shift toward more flexible pay arrangements is part of a bigger change in financial services. Traditional banks, which have been slow to adapt to the digital age, are now facing competition from not only fintech providers but also tech companies that are dipping a toe into financial services. 

According to PricewaterhouseCoopers, 55% of bank executives view nontraditional players as a threat to traditional banks. A third of millennials in the U.S. are open to switching banks in the next 90 days, and roughly a third believe they will not even need a bank in the future, according to the Millenial's Disruption Index by Scratch. Dissatisfaction with traditional banking — in particular, high overdraft fees — as well as receptiveness to new kinds of arrangements, are spurring the growth of alternatives. 

Payroll cards have grown steadily for more than a decade. "Payroll cards have seen pretty positive growth the last few years really as a means to circumvent the challenges and overheads involved with check issuance or direct bank deposit over ACH or other mechanisms," said Gilles Ubaghs, senior analyst at Aite Group. 

And there are now many more choices. "It's easy to imagine an environment where gig economy workers are paid out on a daily basis directly via a mobile channel and reduce even the cost of physical card maintenance," Ubaghs said. 

JOIN @Work: Join CEOs and experts including Arianna Huffington, Lazlo Bock and John Chambers for an interactive discussion on leadership and management amid this unprecedented crisis at the CNBC @Work Virtual Summit on April 2 at 12pm ET. For a full agenda and details, visit CNBCevents.com.