Demand for real-time wages climbed even after fees came back

As the coronavirus pandemic began, PayActiv waived fees for its earned wage access (EWA) user base. Eventually those fees returned, but they did not deter adoption.

Today, four out of five prefer getting their wages in real time using Visa Direct instead of ACH, even with a $1.99 fee attached to the faster option (some employers pay the fee on behalf of their employees).

It has taken about a year since PayActiv first announced it was going to offer real-time payments in June 2019 for its user base to largely transition from a free, ACH service to a paid, instant transfer service. PayActivbegan to pilot the service in the summer of 2019 with a few employers, before gearing up with a large number of clients in October, which is when the shift among its users started.

PayActiv users have the opportunity to get their earned funds through a free service leveraging ACH, however that can take one or more days, depending on weekends and holidays. Additionally, PayActiv users can also access their funds through a mobile app using Visa Direct. “The users don’t see it as ACH or Visa Direct,” said Safwan Shah, founder and CEO of PayActiv. “They see it as money I have to wait for two days vs. something I can get right now. It can be a big factor for someone who is trying to avoid a late fee of if you need to pay someone right now.”

Shah noted that before the pandemic, the usage of Visa Direct had already been experiencing strong adoption gains. For example, when it became available to an employer’s portfolio of workers, it would typically take about three months or six pay periods to get a 50% penetration level of Visa Direct.

The fact that 80% of PayActiv users choose to pay a nominal fee to gain immediate access to a portion of their earned wages speaks to both the need for accessing funds immediately and the importance of the service to these workers.

“Why has there been such a dramatic shift [to Visa Direct]?” said Cecilia Frew, senior vice president and global head of Visa Direct sales at Visa. “Think about how Visa Direct works for an employee who might be stopping at a grocery store on their way home from work. They can request earned wages through the PayActiv app while in the parking lot. Then they can go in the store, shop, and by the time they get to the register, the money is in their account for the purchase. Before when it was just ACH, it might take a day or two to get the money. And if it’s Friday or holiday it might not be available until Monday. For people to choose to pay a fee, it’s the convenience and assurance that the funds are in the account when they request it.”

PayActiv is the EWA provider to Walmart along with a number of other companies. Shah noted that PayActiv has almost 1 million active users and over 4 million on the platform.

“When the pandemic occurred, we decided that we would waive the access fees as we wanted to help out those who were struggling,” noted Shah. “So we waived the fees from March 16 through May 31. Demand for Visa Direct continued to climb. We were curious to see what happened on June 1 when the fees were reinstated. Surprisingly, the behavior didn’t change. In fact, Visa Direct adoption is still organically going up.”

The EWA market has seen a number of new entrants come into the market, such as Ceridian and AnyDay (a unit of QRails). Other competitors are expanding their services, including Branch’s deal with Domino’s to speed up wages and tips to its delivery drivers. The category is also gaining popularity in the U.K. with Orka Pay launching in June and Wagestream raising £20 million (about $25 million) in July to expand its services. Not only is faster wage access important for those who live paycheck to paycheck, it also helps resolve workers’ financial stress.

Visa research showed that 84% of surveyed workers spend time thinking about or dealing with finances at work. About 34% of surveyed workers spend four or more hours each week thinking about personal finances at work. The partnership Visa has with PayActiv is just one example of its efforts to drive faster payments of wages using Visa Direct. Other efforts include its work in 2018 with Postmates to pay its 200,000 delivery drivers instantly.

“I think that more employers will add earned wage access [EWA] going forward, since this is quickly becoming table stakes,” Frew said. “Recruiting and retaining workers all costs money. By offering employees the ability to access their wages before payday, it makes them want to work longer and stay at a company longer. This means it [EWA] is an effective retention tool.”

Shah noted that the EWA service has become increasingly popular with employers, and PayActiv has partnerships with ADP and Paychex to offer the service to their clients, in addition to going direct to employers. Increasingly, employers are looking for ways to help with recruiting and retention, and instant payment of wages is becoming an important tool for HR departments as well as for the employees.

In terms of how COVID-19 affected usage of Visa Direct for EWA funds, Shah said: "The first thing the pandemic did was it made people more aware of what it means to not have funds in a bank account. The second thing it did was increase the need for immediate funds access to buy groceries, especially in March and April.”