Peter Ingram, CTO at Hastee, highlights the ‘Earnings on Demand’ trend and why it’s the future, replacing the antiquated systems that we no longer rely on.
Financial technology has been one of the fastest changing sectors, and one where everyone – consumers and those within enterprises alike – will have changed the way they work because of recent innovations.
The birth of online banking is within memory, with mobile banking not so old – and the explosion of challenger banks with app-driven services is still fresh for the new customers joining in droves.
The pace of change has been rapid and the benefits of the innovation cycle mean that since the 1950s society has moved from cash to cheque, from weekly to monthly payments (more on that later), from cheque to electronic transfers, and from waiting for days for money to arrive to faster payments in a flash. It’s easy to see how consumers and employees have benefited from faster access to their money, as well as easier spending – there’s a whole new generation of shoppers who have never signed a cashier’s receipt in their lives!
Monthly payroll via a cheque only arrived in the 1960s with the passing of the Payment of Wages Act. One of the first firms to try paying its staff monthly, and not in cash, was a tech firm, Pye Radio, who planned it as a cost-cutting decision. It worked for the employer more than the employee, who used to be paid weekly, cash in hand, ready to spend or deposit. In fact, Pye Radio employees rejected their employer’s change of payment type when they first tried it in 1954. So the way that workers and organisations interact around pay is not set in stone – it changes as technology and society change.
And so expectations and how we practise money management have also changed.
Enter Earnings on Demand
Earnings on Demand is another evolution of the way we interact with money, and although it’s little-known now, it’s sure to grow, as challenger banks are doing a version of it already. Some allow access to salary a day or two in advance of pay day, but the real leaders allow access to earnings after each shift or day completed – not at the end of the month.
Flexible pay through Earnings on Demand isn’t just a perk that an employer can offer its workers. It benefits the employer too. It’s easy to see how the employee’s life is changed with access to funds earlier in the paycycle to bag a deal or make a payment without needing to use a credit card or dip into the overdraft. Obviously, being able to claim wages day by day, or shift by shift, without waiting till the end of the month is clearly good for the worker. They don’t have to wait till pay day to access the money that they have already earned, is theirs by rights, and is legally coming to them. It gives them liquidity.
For employers there’s a massive productivity boost, since financial stress has been found to impact workers’ productivity and attendance in the working day. What’s more, depending on the technology provider and scheme used by the employer, they needn’t take on any financial risks or changes from offering the benefit, depending on how the scheme is arranged. In fact, putting aside any ethical and good corporate citizenship factors, the technology can be integrated with absolutely no impact on existing payroll processes.
We no longer rely on other antiquated systems from 50 years ago – look at the evolution in speed of communication as we’ve shifted from letters to fax, mobile phones, and beyond. Similarly, Apple Pay, Monzo, and PayPal have completely changed the way payments can happen, yet payroll still remains largely unchanged. It’s only a matter of time before disruption becomes more widespread as technology and society change.
But what about X?
Common blocks for employers to state are “won’t this encourage poor budgeting, or spending?” But the data shows just the opposite. Users check their growing funds far more often than they draw down on it. They like the security of seeing their wages grow. And they spend it around their commuting times, and on categories like travel and food. The data shows that users are responsible and careful spenders, looking for flexibility in how they understand, access, and use their earnings.
Platforms should offer an app or a dynamic card to allow users to withdraw a safe amount, for example, up to 50 per cent of their upcoming salary after accruing those earnings in that month to date. The cycle should reset the following month. An easy-to-integrate solution would ideally be built on a cloud native platform to interface with all payroll systems, offering an agnostic face to other technologies, meaning that onboarding with HR should be simple, easy, and quick.
In terms of privacy, they can run using a mere five fields of information for each user. Their title, name, payroll ID, salary amount and email. It doesn’t matter if an organisation does not have this information organised within its own systems either, where vendors offer the tools to extract and combine it from multiple data sources within the business.
Of course, employers should be able to trust their platform is safe and secure. Users should not be able to remove more than they have earned! Safety and governance must be baked in with wellbeing algorithms monitoring users’ shifts, earnings, deduction frequency, amount, and the type of spending. Any unusual behaviour really should prompt empathetic assistance and direction to the free resources on money management from third party charities. There’s no need and no right for the employer to be snooping. It is important that employees retain their privacy too. Employers should not be allowed to see their employees spending activity details.
Flexibility, liquidity, life
Flexibility in payment is the future. Given the technology innovations that have sped up the pace of life across all areas it will grow increasingly hard for businesses to justify keeping hold of employee wages until the end of an arbitrary pay cycle.
Workers have a right to their pay, when they need it. The future is Earnings on Demand.