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Uber Technologies is drafting plans to offer banking services to its drivers as part of an effort to fend off ride-sharing competition, according to a report by Quartz.
November 3 -
As banks flee the deposit advance business, startups are offering services that let consumers name their payday and collect what they have earned up to that point, regardless of the day of the week.
August 14 -
Speedier transactions could make a big difference for a wide range of consumers, from hourly workers to patients waiting for medical insurance claims to clear.
March 30 -
Cash flow predictions and deeper spending insights will be the key to adoption for personal financial management applications, say bankers and industry observers.
January 16 -
The digital-age industry sells borrowers on its speed. But it remains captive to outdated technology that can delay the delivery of funds by several days.
October 8
At a time when the industry is moving toward
These apps are seen as alternatives to late bill payment fees, overdraft fees and payday loans for those with volatile income, like Uber drivers, freelancers or even some hourly paid employees.
The emerging technology comes as slower payments look increasingly anachronistic in the mobile era. It calls into question the tradition of paying people on the first and fifteenth and tackles one of the thorniest issues in consumer finance: liquidity.
"Household liquidity affects so many Americans," said Ryan Falvey, who oversees the
According to CFSI,
Most recently,
Startups like
"The cost of holding back someone's pay is high," said Ram Palaniappan, chief executive of Activehours. He said consumers should be able to choose when they get paid just as they choose when to take money out of the ATM. "They shouldn't really have to wait for paydays anymore."
Activehours was born from a personal experience Palaniappan encountered while working at his prior company, Rushcard, where an employee working in the call center had taken out a payday loan. He saw the employee's money trouble as a cash flow issue, not a salary issue. Instead, he floated the employee the money. That idea turned into Activehours, which launched last year.
"I knew if I didn't try to do this, I'd always feel bad about myself," he said.
The company relies on its users' direct deposit and employment history and has integrated several time and attendance systems to verify hours worked before floating the money. It then automatically withdraws the money from its users' bank accounts on payday. It says its users represent more than 4,000 companies currently.
What Activehours does is essentially lending, but the company is adamant that the product is decidedly different from storefront payday lenders.
The starkest difference is the fee structure. Activehours has no fees, or at least no set ones. It asks its users to give what they think is appropriate. Payday lenders, which are facing increasing scrutiny from regulators for predatory practices, can charge customers an interest rate upwards of 500% when expressed annually.
Activehours describes itself as an "ATM for your wages." And observers, like Jennifer Tescher, president of CFSI, say companies like Activehours shouldn't be viewed like payday lenders.
"Calling them lenders because of how they are structured takes away from the mission they are trying to accomplish," Tescher said. "I don't think any of those companies would say they are in the loan business. They are in the cash-flow-smoothing business."
Disrupting the payday cycle is just one way of tackling the cash-flow problem for on-demand workers who don't always know how much they will earn or when they will receive a payout.
There is more than $1 trillion held up for over two weeks in the payroll system, according to a whitepaper by Activehours, and the stakes can be extreme. The whitepaper highlighted a consumer who wrote that on-demand pay "has been there to help me keep my bills going and has eliminated the choice of do I pay my bill or do I get to eat or drive to work."
The apps are responding to a changing economy that has more on-demand workers. In the past, freelance work was often a side gig, and therefore, slower payments caused fewer issues, said Jay Bhattacharya, chief executive and co-founder of Zipmark, a payments company.
"This is becoming a hot, hot topic," Bhattacharya said.
The emergence of payroll disruption apps also shines a spotlight on the
ACH, which is often used to move salaries for those with bank accounts, can take several days to deposit into an employee's or contractor's account for numerous reasons such as banks' batch systems, risk mitigation techniques or holidays.
Banks "will need to anticipate and enable a reality where the economy and our lives
Activehours' model is currently direct to consumer, but Palaniappan is not ruling out partnering with a bank and already has bank employees using his app.
"We are trying to make it a really good customer experience," he said.
Building relationships with happy customers could be the intrinsic value in a company that has a pay-what-you-want model. The startups provider users with money when they need it and aim to get them out of the cycle of overdrafts, payday loans and late fees. And by requiring direct deposit, the startups are building relationships with people who have bank accounts.
There are some potential hurdles, of course. Most direct deposits rely on the ACH system, so receiving the funds won't be instant. They also run the risk of potentially introducing other bad consumer habits, like people exhausting their paychecks perpetually.
The upstarts' work to overcome cash flow challenges comes as some banks are looking to guide consumers out of the habit of living paycheck to paycheck. Recently, USAA rolled out
Bringing together tools that smooth and forecast cash flow is where banks and startups should be looking next, Tescher said.
"We now have a series of products that allow you to pull down money you've earned when you need it and ones that give you cash flow estimates so you can plan. We need to put those together," Tescher said. "That's my idea of nirvana."
