Earned Wage Access: Aiding Unbanked And Underbanked Employees

Most Americans have little money left over at the end of the month

Easier access to wages is a hot button for many employees. One reason for this need is the number of unbanked and underbanked individuals in the U.S. The FDIC reports that approximately 7.1 million U.S. households are unbanked, meaning no one in the household has a checking or savings account at a bank or credit union. This issue became vital as federal stimulus checks attempted to get into these individuals’ hands.

In addition, ‘underbanked households’ have just as big a challenge, with nearly 20% of U.S. households falling in this category. Underbanked households have at least one person with an account at a federally insured institution. However, they also regularly use alternative financial services and products, like payday lenders or check cashing services.  

Unbanked/underbanked rates are higher among Black, Hispanic, American Indian, Alaska Native, and working-age disabled households at nearly three times the national average.

The number one reason cited for people being unbanked/underbanked is that they do not have enough money to meet minimum balance requirements (48.9%). Traditional banks then charge these accounts for not maintaining a minimum balance. As a result, most of these individuals carry minimal average daily balances in their accounts while living paycheck to paycheck.

A June 2021 research study states that over 125 million U.S. adults live paycheck to paycheck. In addition, 70% of Millennials (currently ages 25 to 42) currently, live paycheck to paycheck. This segment is the largest share of any generation. Thirty-three percent of Millennials struggle to pay their bills on time.  

Most Americans, even those with higher wages, have little money left over at the end of the month. In addition, the pandemic compounded some of the complexities of balancing finances. These circumstances suggest that the need for more immediate access to wages will grow as new challenges and opportunities emerge in the months and years ahead. Moreover, such tools may be vital in helping consumers cover the expenses that can arise as part of daily life.

Payroll departments are looking for ways to help with these issues while keeping costs at a minimum. In a recent poll of payroll professionals, 25% stated that on-demand pay is necessary for improving the employee experience. In addition, they believe earned wage access is a differentiating benefit for employers in the future.  

Modern earned wage access (EWA) services offer easy access to a federally insured bank account with a debit card at no cost to the employee or employer. Workers submit their requests via mobile app at the end of their shift when funds are needed, and available wages are transferred onto this debit card. Depending on the EWA provider, these funds are immediately available to the employee. This action can be done because these EWA services are integrated with the company’s time and attendance system. Because workers set up their direct deposit to this new account, when payroll is deposited, the system automatically collects any wage advances.  
Many companies protect their employees by only offering a portion of their total wages to be available with this service. The advantage is that there is no additional workload on payroll, and employees get immediate access to a portion of their earned wages. Some EWA providers charge a nominal fee to the employee, employer, or both to access these funds compared to payday lenders.  

However, EWA providers use the merchant service fee associated with the debit card provided to cover this expense. Most people are familiar with getting “1.5% cash back” on purchases with a debit card. Rather than the consumer getting the funds, they are used to offset the cost of EWA fees. In reality, the merchant pays the EWA fee, so there is no cost to the employee or employer.  

The need for low or no-fee access to earned wages is significant to the unbanked/underbanked employee. They no longer need to use costly payday lenders or check-cashing services. Ultimately, this improves employees’ financial well-being, increases retention, lowers costs, and helps with diversity and inclusion initiatives.  

Robert Moore is the Director of Training for Time Equipment Company’s workforce management solutions.  He provides a unique educational perspective with a Bachelor in Drama, MBA, and SHRM-CP Certification.  In addition, his decades of experience and exposure to various business types offer a holistic understanding of the complex workforce.  Robert’s presentations on “Becoming an Employer of Choice” and “Understanding the New Generations” make him a sought-after speaker around the country.   Connect Robert Moore