PNC Financial began offering earned wage access to commercial customers in early 2022, through a partnership with the fintech DailyPay.
In a tight labor market, employers are looking for any advantage that’ll help recruit and retain workers, and PNC wanted to be a bigger part of that conversation, says Doug McKinley, senior vice president and head of innovation at the Pittsburgh-based regional bank.
“As you’re trying to attract or retain employees, you’re going to need to offer something that employers who are competing for that same talent don’t have. It allows them to differentiate,” he says.
The dollar volume of wages accessed through this employee benefit tripled between 2018 and 2020, to $9.5 billion, according to research from Aite-Novarica Group. Early entrants were fintechs such as Payactiv, CloudPay and Ceridian, which partnered directly with employers to offer EWA to employees.
What Is EWA?
Earned wage access is when employees can withdraw a percentage of their accrued pay on demand, rather than waiting for the traditional weekly or biweekly payday. The practice goes by many names, including on-demand pay, instant pay and accrued wage access.
EWA has not been a core product for many traditional financial institutions. But some have developed their own EWA programs internally to offer commercial customers, while others, like PNC, have partnered with fintechs to offer this service. PNC packaged DailyPay’s technology under the name “PNC EarnedIt.”
DailyPay also works with Santander and TD Bank, and recently announced a partnership with BMO Financial. Financial institutions either private label DailyPay’s EWA service or refer their commercial customers directly to the fintech, says Rob Nardelli, DailyPay’s director of commercial banking and strategic partnerships.
Banks that don’t offer EWA programs are missing out on an opportunity to deepen ties with businesses.
This is especially true as more Gen Zers and Millennials enter the workforce. In a 2022 survey of 3,500 workers by global staffing firm Aquent, 83% of respondents ages 18 to 24 said EWA benefits were slightly or very important to them.
“You do see certain demographics that it’s more attractive to versus others,” says Jay Conforti, managing director for global HR and payroll strategy at KPMG.
EWA can be offered to employees at no cost or for a flat fee any time before the normal payday. The employer just deducts whatever was accessed through EWA and then pays the employee the difference on payday.
Jon Morgan, chief executive of the consulting firm Venture Smarter, says EWA has helped his 200-employee workforce better prepare for financial emergencies. “This program has proven to be particularly beneficial for employees facing unexpected expenses or financial emergencies, as it allows them to bridge financial gaps without resorting to high-interest loans or credit card debt,” he says, adding that this improves their financial wellness and reduces stress.
Here’s what banks need to know as they consider adding EWA to their product set.
EWA Is Still New for Employers Too
Employers have been offering financial benefits like 401(k) and access to financial advisers for a long time, but EWA benefits are still relatively unfamiliar. “If we were having a conversation five or 10 years ago, it’s not something that’s even thought about or available,” Conforti says.
Early adopters of EWA benefits were companies with hourly workers, who often work different shifts and may not receive consistent paychecks. In a KPMG survey, 94% of hourly workers say that access to their wages ahead of payday would be helpful.
Economic instability during the COVID-19 pandemic also left many workers struggling to make ends meet and has contributed to an increased interest in EWA to address financial emergencies. “That ability to have access to cash earlier, not just for themselves, but to help out others around them has become really critical,” says Robin Rasmussen, partner for global HR and payroll at KPMG.
Uber began offering EWA to drivers in 2016. The rideshare company reported that nearly 80,000 workers signed up for the benefit in just a few months. Amazon has been offering its EWA program called Amazon Anytime Pay to 1 million employees since 2021. Employees can get access to their earned wages on a reloadable debit card from payroll provider Wisely.
“That ability [for employees] to have access to cash earlier, not just for themselves, but to help out others around them has become really critical.”
— Robin Rasmussen, KPMG
Lian Neeman, global director of benefits at Amazon, says that adding an EWA benefit was an easy decision for the company after workers told them having access to money ahead of payday would help them better prepare for financial emergencies. “It’s smart to set your goals around solving a pain point, versus just simply adding a new vendor,” Neeman says. “That way, you have a tangible way to measure the success of a benefit.”
Employers with salaried workers are showing interest in EWA as well. Roughly 84% of employers say that financial wellness benefits like EWA reduce employee attrition, according to a survey that Bank of America conducted in 2022. “That just goes to show that this is a benefit. The ability to get your pay when you earn it, is very tied into that concept of modern payroll,” says Deepa Chatterjee, chief operating officer of dayforce consumer services at Ceridian, which offers its own EWA benefit.
Keep Abreast of the Regulatory Environment
As they roll out earned wage access programs, financial institutions should be aware of applicable regulatory guidelines. Because EWA grants early access to cash in advance, some question whether it’s a form of lending.
For the time being, the Consumer Financial Protection Bureau has advised that EWA can be distinguished from credit lending if it meets certain criteria. One is whether the EWA provider has contracted with the employer to offer services to employees. The amounts made available should not exceed what the employee has earned, and the advanced amounts should be recovered via an employer-facilitated payroll deduction or similar method.
EWA transactions should not be reported to credit bureaus, the CFPB said.
The California Department of Financial Protection and Innovation also has taken an interest in EWA providers, as have state regulators in Nevada, Arizona, Missouri and Connecticut.
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EWA Technology Should Integrate Easily into Employer Payroll Systems
The technology to facilitate earned wage access adds a level of complexity to employer budgets, and financial institutions should keep this in mind when offering the service.
“This means this cash is now moving through the organization a lot sooner,” Mark Brim, industry leader for services at Aquent, told the Society for Human Resource Management. “And companies like to hold on to cash for as long as they can.”
Downside for Businesses Offering EWA:
Cash is now moving through an organization a lot sooner. And companies like to hold on to cash for as long as they can.
Companies with antiquated payroll systems often struggle to integrate the technology. Partnering with fintechs — such as DailyPay, which already works with 180 payroll providers — can ease that friction.
DailyPay charges the employees of its own commercial customers $3.49 for instant transfers to an account but provides its next-day ACH payment service for free, according to Nardelli, who spoke at a Nacha Smarter Faster Payments conference in the spring. DailyPay’s commercial customers — which include the likes of Target and McDonald’s — don’t have to pay anything for the program beyond the cost of the initial set up, Nardelli said.
He also said DailyPay’s new focus is to pursue community banks and credit unions as partners.
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Offer EWA as Part of Financial Wellness to Be More Competitive
Banks that want to offer earned wage access should consider doing so as a part of a broader suite of financial wellness benefits. Most employers offer a variety of financial wellness tools and benefits to their workforce. Amazon, for example, offers benefits like free financial counseling through the company’s employee assistance program and an emergency savings fund program.
Morgan says Venture Smarter offers EWA alongside educational resources and financial counseling, to ensure workers are using the benefit responsibly and avoiding overuse.
“While it provides much-needed financial flexibility, there is a risk of overuse, leading to decreased financial stability over the long term,” Morgan says. “We have taken steps to address this concern by implementing educational resources and financial counseling to help employees make informed decisions about accessing their earned wages.”
Education Is Needed:
Don't just offer EWA to employees in a vacuum. It's also increasingly important to provide employees with financial education as well.
PNC’s McKinley says the bank has positioned its EWA program as a financial wellness tool, which adds to a suite of other financial wellness benefits, including student debt assistance, health savings accounts, retirement plan services, online financial education, and more.
“We’re trying to be creative and innovative in how we service our customers in the commercial businesses,” he says. “We’re constantly on the lookout for the emerging trends and how we can improve the experience of our employers or employees.”