On-demand pay, also known as earned wage access, began catching on with employers and their employees in the past decade following a revolution by ride-share companies that pay their drivers on a daily basis. As demand for the services has increased, competition has too.

A host of different companies act as intermediaries between an employer and the employee to pay the employees sooner than the typical two-week pay cycle if employees so choose. Different EWA intermediaries have different business models, with some taking payment from employers and others requiring employees to pay for the services.

DailyPay, founded in 2015, charges a corporate customer’s employee $2.99 per transfer to have their pay instantly transferred to an account, and provides its next-day ACH payment service for free. The majority of employees paid through DailyPay choose to take pay with a faster delivery, Nardelli said during the panel. 

DailyPay’s payments account for one in 10 RTP payments, Nardelli said, citing TCH data for the third and fourth quarters of last year. That’s creating business for banks too. On-demand pay services are a way for TCH to encourage community banks to add RTP service because it’s a competitive advantage for banks, Gurz explained.

Current corporate clients for DailyPay’s services include the grocery chain Kroger, the retailer Target and fast-food company McDonald’s. Nardelli noted that DailyPay’s corporate clients don’t have to pay anything beyond the initial cost of setting up the service. 

Following the appointment of Kevin Coop as DailyPay’s new CEO last June the company has stepped up its focus on forging ties with banks to pitch its white-label services, pivoting from a prior focus on linking with payroll companies such as ADP and Workday, Nardelli said.

“We have a new administration, in terms of executive officers, and the mission is clear,” he said. “Our new administration has us 100 percent focused on banks, credit unions and, now, community banks.”

To support that revised mission, DailyPay landed $260 million in new lending capital in January through a new $160 million revolving credit facility from Barclays bank and hedge fund firm Angelo Gordon, plus a $100 million term loan from the venture capital firm SVB Capital and investment company Neuberger Berman.

DailyPay also has turned the heads of neobank Chime, which reportedly offered to acquire the on-demand payments provider last year, according to The Information, which reported the news in December, citing sources familiar with the matter.

“We’re the global leader in earned wage access and we only cover 3 percent of the American market,” Nardelli said. “This is a huge industry and it’s only going to continue on that hockey-stick handle growth trajectory.”

Still, DailyPay has plenty of competition from other providers, including Payactiv, Branch and Gusto, among other fintechs that have been drawn to the industry.

On-demand pay providers like DailyPay say they’re providing employees with savings by allowing them to avoid using payday loans that charge high interest rates. “We plan on taking good ole Larry Loan Shark out of business,” Nardelli said during the panel, noting that millions of workers in the U.S. still use payday loans. Workers who turn to EWA services can also avoid bank overdraft fees that might result when they fall short of account funds, he said.

Offering EWA services is also a benefit for employers struggling to attract and retain workers, Nardelli said. It’s the biggest innovation in the sleepy payroll arena in 80 years, he argued.

Doug Sturm-Smith, who is head of digital and real-time payments for PNC, said his bank started exploring what applications instant payments might have in the payroll area about eight years ago, and came across DailyPay in the process.

“What we didn’t realize probably eight years ago is how much impact earned wage access was going to have within this payroll space,” Sturm-Smith said during the conference panel. He explained how workers are now driving for Lyft on the side to get paid immediately and use that money for expenses like groceries. “They can’t wait that two weeks for that paycheck anymore.”

PNC has experienced “consistent growth” since introducing the EWA service for companies, Sturm-Smith said. “We started seeing these opportunities for earned wage access and that’s when we probably started talking, about seven or eight years ago, about how RTP can help influence the earned wage access piece,” Sturm-Smith said.

As to whether employers might start making faster payments directly to employees, eliminating the need for intermediaries, Nardelli said he didn’t see that happening anytime soon because of laws related to payroll, the cost of doing so and capital management needs at companies.

By Lynne Marek on April 24, 2023
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