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Social innovation to deliver employees wages in more timely manner
According to BankRate, only 37% of Americans can cover an expected $500 expense, highlighting that the majority of U.S. workers are essentially living paycheck to paycheck. To make ends meet between paychecks, many workers have had to turn to notoriously predatory payday lending, which can result in dramatically high-interest repayment rates and push people into an ever-deepening cycle of debt.
Payactiv, a pioneer in Earned Wage Access (EWA), works with thousands of employers to enable employees to access a percentage of their wages as they earn them, rather than having to wait until a regularly scheduled payday or turn to a predatory lending service in times of need.
As part of my research of purpose-driven companies, I spoke with Safwan Shah, founder and CEO of Payactiv, to learn more about EWA and to discuss how the coronavirus pandemic has affected the business. Here are some key points from my article on Payactiv:
Payactiv is the first company approved by US Consumer Financial Protection Bureau to launch their EWA product. Shah explains that the naming of EWA was deliberate “is for wages earned, so it's not early, which connotes impatience; it's wage, not income because income can be commission or something like that; and it's access, not an advance, which implies as if someone did you a favor.”
Shah believes that employers are the key to improve employee financial wellness. “I operate from the underlying assumption that employers care about their employees and want to do the right by them,” he says. “At the end of the day, businesses live and die on the altar of their paying customers, and they care about the employees because they are part of how products and services are delivered to customers.”
Shah thinks the proliferation of payday loans reveals a fundamental misalignment between the biweekly receipt of wages and the multiple days in between during which bills and other expenses must be met. “The payday loan was just an early phase of this process because payday lenders did not, I think, take the trouble to engage the employers,” he says. “It was probably very hard to do that, so they sat on street corners near big employers to access individual employees.”
Technology is at the heart of Payactiv’s business model. “The key insight of EWA is that timing of when you are paid is entirely in the control of your employer,” Shah says. “If technology drives the timing of pay, then we could create technology and a product in which people could access their money as they earn it.”
To help employees negatively affected by the Covid pandemic, Payactiv formed a nonprofit organization called Payactiv Foundation which gathered $80 million for those in need of financial aid. “You can imagine going to my board and asking for something like this and for my board to not only support me but to let the program go for 70 days — it was a momentous occasion,” Shah recalls.
Employees should have the right to access their already earned wages when needed and by working with employers, Payactiv makes that happen.