By Megan Doyle
The rise of instant payments has the potential to benefit all involved parties, as well as the economy as a whole. A full transition will, of course, take time, but here is where payments could be heading.1
According to a 2018 PYMNTS study, nearly 70 percent of workers surveyed expressed a desire for shorter pay periods, with nearly a quarter interested in being paid as their money is earned.2 The main two reasons were so they could pay their bills and better manage their cash flow. Separately, another expert corroborates the findings, saying that instant money transfers are particularly appealing to younger employees and the large majority of U.S. workers living paycheck to paycheck3 —which a CareerBuilder survey pegs at 78 percent.4
The ability to provide faster payments represents a win-win for both businesses and workers. One survey found that people are nearly twice as likely to apply for a job that pays daily, bolstering a company’s ability to compete for talent. Faster payments could result in happier employees and, therefore, less turnover.5 And in the freelance-based gig economy, where faster payments are becoming more popular, 84 percent of gig-working professionals said they would work more if they were paid faster.6
Indeed, faster payments are particularly enticing for gig workers, who typically get paid per individual job. Digital marketplaces, which are on the rise as a dominant source of finding gigs, also is making it easier for workers to be paid online. Several instant money transfer solutions have come to fruition particularly for gig-based workers.7
For example, for a small fee, food and grocery delivery service Postmates enables its gig workers to instantly receive their earnings instead of waiting four-to-seven days for their scheduled paystubs to be delivered via ACH.8 Similarly, ride-share companies Uber and Lyft both offer instant payment possibilities for their drivers. And payroll company ADP recently teamed with a technology company to provide a way for its customers to offer daily pay options to their workers.9
Faster payments for employees are making strides in the typical nine-to-five economy, too. For example, more than 200,000 Walmart workers signed up for the company’s new instant payments program within the first six months of its release. The program lets employees receive up to eight free instant payments per year for up to 50 percent of their wages already earned during a standard two-week pay period.10
Behind the scenes, some payment organizations are using new technology for programs that give merchants instant access to the funds generated by credit and debit card sales. Doing so involves eliminating the holding step used by the payments industry to assess risk and, instead, using AI-based technology to evaluate the likelihood of fraud in real time. If no risk is detected, money can be transferred instantly.11
A 2016 NACHA survey found that 82 percent of U.S. workers were already being paid electronically through direct deposit, with many businesses outsourcing payroll duties since managing tax and insurance deductions can be complicated.12 Given most employees are used to this decades-old method, getting them comfortable with changing over to instant payment systems, despite the benefits, could take some time, experts say.
Another potential obstacle is the process of validating the time-card systems of traditional payroll systems, especially for larger companies that must deal with more risk management and data flow issues. Instant money transfer technologies must also be able to verify that paycheck recipients are who they claim to be, say experts.13
However, as technology evolves and AI and automation systems mature, instant money transfers for employees may become status quo.14 Financial institutions appear to be growing more comfortable with the prospect, too: Nearly 90 percent of banks expressed interest in real-time payments in 2018, up from just over 50 percent in 2017.15
Instant money transfers have been on the radar in a variety of industries, but as gig workers get paid quicker, traditional hourly employees may begin to expect the same convenience. Changes to the traditional two-week pay cycle may be imminent as organizations inside and outside the gig economy make strides to pay their workers faster.
Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.
1. “A World Where Every Day is Pay Day,” Payments Journal; https://www.paymentsjournal.com/a-world-where-every-day-is-pay-day/
2. How Will We Pay: A Week In The Life Of The Connected Consumer, PYMNTS; https://www.pymnts.com/how-we-will-pay/
3. “How faster payments could kill the two-week pay cycle,” Payments Source; https://www.paymentssource.com/news/how-faster-payments-could-kill-the-two-week-pay-cycle
4. “Living Paycheck to Paycheck is a Way of Life for Majority of U.S. Workers,” CareerBuilder; http://press.careerbuilder.com/2017-08-24-Living-Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-of-U-S-Workers-According-to-New-CareerBuilder-Survey
5. “Happy Employees Stay Longer,” DailyPay; https://www.dailypay.com
6. Gig Economy Index: January 2019, PYMNTS; https://www.pymnts.com/gig-economy-index/
7. Gig Economy Index: January 2019, PYMNTS; https://www.pymnts.com/gig-economy-index/
8. “Visa, Postmates Give Gig Workers Instant Pay,” PYMNTS; https://www.pymnts.com/digital-payments/2018/visa-postmates-gig-economy-freelance-worker-wages/
9. “2019: The Year Of Instant Payments,” PYMNTS.com; https://www.pymnts.com/news/payment-methods/2019/instant-faster-disbursements-gig-economy/
12. “New NACHA Survey Shows Adoption and Awareness of Direct Deposit via ACH Continues to Build, NACHA; https://www.nacha.org/news/new-nacha-survey-shows-adoption-and-awareness-direct-deposit-ach-continues-build
13. “How faster payments could kill the two-week pay cycle,” Payments Source; https://www.paymentssource.com/news/how-faster-payments-could-kill-the-two-week-pay-cycle