By Rob Nardelli, Director of Commercial Banking, DailyPay
According to the Federal Reserve, about 19% Americans are considered to be ‘unbanked’ or underbanked (defined as those who use alternative financial services such as payday loans, money orders, or check cashing).
For those who fall into this category, they are often the targets of predatory lending companies or other expensive financial service options just to make ends meet. And in many cases, the targets are those just starting out on their career journey. For example the 12 million or so Americans who use payday loans comprise members of underserved communities including recent immigrants and young adults saddled with college loans.
In addition, according to the CFPB 23 million households pay overdraft fees in any given year that equates to billions of dollars in penalty fees. Instead of charting a course for financial security, millions of Americans are unfortunately heading down a road that leads directly into the seemingly never-ending cycle of debt.
The reality is that most working Americans find themselves in a struggle each pay cycle to survive. An astounding two-thirds of Americans consider themselves living paycheck-to-paycheck with the average household debt soaring to over $100k. Take a moment, think about that. Not surprisingly, so many of us are having trouble paying bills on time. Nearly 4 in 10 (37%) U.S consumers have been penalized a late fee because of an overdue bill in the last year according to a NerdWallet study.
With stubbornly high inflation still at around 3%, consumers are continually facing the task of putting food on the table.
However, there is a financial wellness tool a number of leading banks and financial institutions are offering their business clients to employees avoid the cycle of debt.
Leveraged as part of their offering to their business clients, earned wage access is an employer-sponsored solution that empowers employees with choice and control over their pay. This flexibility allows consumers to take control of their own finances by enabling them to pay bills on time and avoid the costly fees related to missing a payment referenced earlier. And most earned wage access providers offer a no-fee option for their users as well as don’t charge employers to offer the service.
The impact is quite considerable. A study from Arizent commissioned by DailyPay revealed that about 7 in 10 (69%) of users who previously paid late fees do this less often or stopped completely since they started using earned wage access. Similarly, over 6 in 10 (62%) of users who previously incurred credit card interest charges do this less often or stopped completely since they started using DailyPay. And in a separate study, data also shows that earned wage access is helping to drive payday loan lenders out of business. A study conducted by Aite Novarica commissioned by DailyPay found that 95% of those who were previously reliant on payday loans in any way either stopped using payday loans or reduced use (15%) after using their earned wage access solution.
Earned wage access represents the most-fiscally responsible way for banks to move away from the high-cost of late fees. Additionally, it’s an opportunity for banks and their business partners to signal to consumers that they care and are invested in their financial wellbeing. Because earned wage access provides consumers with an actionable and highly effective financial tool to help them on their financial security path.
In addition to reducing the need to pay credit card interest fees, Arizent’s research also revealed that about 7 of 10 (69%) earned wage access users who previously paid late fees do this less often or stopped completely since they started using the solution.
For financially-strapped Americans, banks should be focused on providing new and innovative ways to uplift their customers. To offer new products and solutions that actually empower and embolden them. It’s a winning-formula that the American consumer can bank on.