Robin Brookens, a senior clinical informaticist at OhioHealth in Columbus, used to occasionally go to check cashers when she was in a financial bind, though she thought their interest rates were too high. Her daughter is in dance competitions, and the high fees are often a strain on her household budget.
One day, she was in the parking lot of a check-cashing outlet and heard an ad for Earnin on the radio. She downloaded the app, requested $100, and the money appeared in her account the same day. She has used it ever since.
"Sometimes life happens and there might be a bill or a car repair that comes up in between paychecks and I just go straight to Earnin," she said in an interview. "I don't have to go to a check-cashing place and pay back crazy fees. I just tap into my own money a little bit earlier. It gets taken out on my payday, so I know what to expect."
She typically leaves a tip of $3 to $11 for each advance, depending on how many advances she takes during a pay period. One time she had to borrow $100 five times, so she only tipped $3 each time.
"I'm so grateful for the app and I look at it as such a unique service that it's like a gratitude tip," Brookens said. "It's not required, but why not? If this app wasn't available, I would be paying back $50 to $60 out of my next pay just in fees."
Earnin, a provider of an early wage access service, said Thursday it has reached a milestone: It has let customers get early access to more than $15 billion in earnings since it started in 2013. and in 2022, Earnin users took 70 million cash advances, for a total of $5 billion.
"People are dealing with inflation," said Ram Palaniappan, Earnin's CEO. "It's getting tougher to make ends meet. They need a product like this." These customers are avoiding over $1 billion in overdraft fees, he said.
The Palo Alto, California-based company also says people that use its service have increased their wages and become more financially healthy.
But while the company reports progress among its users, consumer advocates still call Earnin a bad choice for consumers and an
"High-cost payroll loans are scrutinized closely in New York, and this investigation will help determine whether these payroll advance practices are usurious and harming consumers," New York Bank Superintendent Linda Lacewell said at the time.
Earnin is one of several companies that provide a low-cost alternative to payday loans by letting people get quick, small advances on their next paycheck. All say they help people living paycheck to paycheck meet emergencies and daily needs and avoid overdraft fees.
Earnin's approach is different from the rest. The company typically does not connect directly with employers to obtain payroll, time and attendance information. Instead, it uses its own technology to estimate hours worked based on geolocation and bank account information from Plaid.
Earnin says its approach is lower cost and comes with no credit checks, interest or mandatory fees, though it acknowledges that it does charge a fee of up to $3.99 to receive the money right away. Consumer advocates say this makes its product a payday loan.
Benefits of Earnin
According to Earnin, people who use its earned wage access service Cash Out see their paychecks grow 10% more than inactive users (inactive users are people who open the app just to check how much earnings they've accrued, or to know when to pay their bills, for instance, but don't use the service to borrow money).
Palaniappan said in some cases, customers can't afford to fill their car with gas, so they buy $5 or $10 worth at a time. Then if something unexpected happens, they can't buy gas and they miss work. Using Earnin, they can download the previous day's earnings, buy gas and get to work.
"The number of hours worked goes up about two to three hours per week once you start using our app," Palaniappan said. "That then leads to higher wages."
Consumer advocates suggest that if early wage access providers really want to help people, they could help them save for a rainy day instead of helping them reach into future paychecks.
Palaniappan says Earnin does this. It offers a "Tip Yourself" feature through which users can set aside $1 to $50 a day, and they can retrieve their money from the "Tip Jar" at any time. The service is provided through a custodial account deposit agreement with Evolve Bank & Trust in Arkansas.
Earnin says it has helped its customers avoid $1.3 billion in overdraft fees.
Estimating pay
The key difference between Earnin and other providers of earned wage access is its direct-to-consumer model, rather than working with employers.
Earnin built its own time and attendance system into its app. It estimates the employee's next paycheck based on knowing where they work and using geolocation to see when they are at work.
In some cases, Earnin does integrate with employers, Palaniappan said. For instance, home health care workers get assigned to go to different patients' houses, so geolocation wouldn't work because Earnin doesn't know where they're assigned. In that case, Earnin gets the hours-worked data from the employer's job assignment system.
In the beginning, Earnin had integrations with some employers' time and attendance systems, he said.
"We found that ours was more accurate than what the employers had because the employers were not clocking in and clocking out," Palaniappan said. On or just before payday, supervisors would often correct the clock-in and clock-out times.
"It's super important for us to be accurate because we're pushing out money on a non-recourse basis," Palaniappan said. "So the level of accuracy from the employer systems was insufficient for us to make it sustainable."
Earnin knew its system was more accurate because it could see the paychecks sent to customers' bank accounts using Plaid, Palaniappan said. "We use the paycheck as the source of truth," he said.
Though some people might consider location tracking intrusive, Palaniappan said this is something employees opt into.
Some consumer advocates say that because Earnin doesn't work directly with employers, its offering is not really earned wage access, but simply a loan that should comply with state usury laws. Many states cap loan interest rates at 36%. For short-term loans, a tip plus an expedited service fee could quickly translate into a very high annual percentage yield.
"Our bottom line view is that no one should pay for their pay," said Beverly Brown Ruggia, financial justice program director at New Jersey Citizen Action. In New Jersey and other states, the earned wage access industry has been working to carve itself out of state usury caps, she said.
"Their main argument is that these are not loans," Brown Ruggia said. "In our view, if you're getting in advance from a third party and you pay them back and there's a fee, that's a loan. It needs to be defined as a loan and certainly not carved out." She is also concerned about consumers borrowing too much from the next paycheck and running into overdrafts.
Palaniappan argues that it's important to let people access money they have earned.
"I feel like it's problematic for us as a society to tell employees that they should not have access to the pay if they work today," he said. He also argued that because Earnin has no mandatory fee and it's a non-recourse product, it doesn't meet the technical definition of a loan. He pointed to a
Tipping
State regulators have been investigating fintech tipping models like Earnin's. In some cases, fintechs' so-called "tips" have turned out to be mandatory — where there's no tip, there's no loan. For instance,
Palaniappan says that at Earnin, tips are completely voluntary and users typically only tip a dollar or two. In the second quarter of 2022, 53% of customers used the service without tipping, the company said.
Some consumer advocates wonder how this could be.
"What we don't understand is, what kind of business model depends on the kindness of their customers?" Brown Ruggia said.
Palanniapan said Earnin's business model "forces us to be really careful on the cost side and the efficiencies, given that we have less control on the revenue side. It's surprising to a lot of people that we can make this work because they compare us to credit-like products like overdraft fees and payday loans, which are so expensive because they're taking on a certain type of risk. The reason this works is because it's like payroll. We don't have the kind of risk that a payday lender and overdraft fee has."
Earnin charges an expedite fee of $1.99 to $3.99 to anyone who wants to receive their advance right away. Otherwise, it comes through ACH, which can several days.
Lauren Saunders, associate director at the National Consumer Law Center, calls these kinds of expedite fees "another deceptive profit center."
"If you can't wait for your paycheck, these are being marketed as giving you money right now, but in order to get it right now, you need to pay that expedite fee," she said.
Palaniappan says these fees are comparable to money transfer apps and cash advance apps.
Overall, Brown Ruggia sees a dark side to the increased use of earned wage access.
"What we saw during Covid was low income people desperate to get paid as quickly as possible," she said. "Our position is that we simply don't want them to be taken advantage of. The overall product needs to be regulated and it needs to fall within state regulations for consumer loans."
Palanniapan says consumers are opting for this.
"You've seen the numbers that we have, it's clear that consumers want the product," he said. "If you look at how much overdraft they're avoiding, it's clear that they're actually getting benefit out of the product."
