PayActiv joins ADP as it takes on payday lenders

PayActiv's adding membership in the human capital management firm ADP Marketplace to give it more bulk as a payday lending alternative.

Safwan Shah, founder and chief executive of PayActiv, said his company is not in the lending business but in the business of providing consumers with access to the wages for which they have earned but not yet been paid. He added that “what we do is provide timely access to their earned wages. It’s not a loan since it’s been earned. It’s timely because it’s when they need it, when their bills are due.”

While a significant amount of press has been made about providing faster access to payments for Uber and Lyft drivers, as well as workers in the gig economy, there is an underserved community of millions of Americans who work in low-wage jobs living paycheck to paycheck. These consumers often fall into the debt trap cycle of payday lending, which is being hotly debated on Capitol Hill.

PayActiv, the Silicon Valley startup that specializes in helping low and mid-income workers gain earlier access to their earned wages has begun to accelerate its business with recent partnerships that include Walmart in December 2017 and now ADP.

Joining the ADP Marketplace provides PayActiv with access to potentially reach over 600,000 employers representing over 26 million employees. According to PayActiv’s website, its first customer went live in 2014. Since then it has dramatically scaled its business. Shah said PayActiv "has nearly half a million users among several hundred employers who have signed on as clients across the U.S.”

PayActiv’s Walmart deal is a partnership with another fintech startup, Even Responsible Finance Inc., which is providing a personal finance app. In the deal, Walmart will let its 1.5 million associates access earned wages ahead of scheduled paychecks so that they can avoid being late on payments or worse, having to use payday lenders. In the deal, employees will be able to receive eight free uses of the Instapay tool through Even’s app, which is linked to an employee’s checking account or prepaid account and the Walmart payroll system. Additional use, beyond the eight free ones, is paid by the employee.

For most companies the access is provided for a flat fee of $5 per pay period when used, which the company refers to as a membership fee. This allows a consumer to access up to 50% of the net earned wages with a $500 limit. “All of these are configurable by the employer” stated Shah.

The fee can be paid by the employee or the employer or be subsidized such as in the case Goodwill of Silicon Valley which pays half of the fee or in the case of Walmart which provides eight free withdrawals be year.

“Once [the workers] use it they change their payroll timing,” and active users will typically access it 10 to 20 times a year because they have the flexibility, Shah said. The funds are sent to a consumer’s linked account via ACH since it is a cost-effective network, he said.

In an effort to continually evolve with its customers, the company has added a bill-pay feature that is available for free. It works with ACI to provide this capability, Shah said.

He said the biggest benefit employers see in providing earlier access to earned wages is that it improves with recruiting, lowers employee turnover and generates more engagement with employees. It “gives employees the sense that the company cares about them," Shah said. "Showing empathy can go a long way to building a positive relationship with staff.”