What do we want? Money! When do we want it? NOW!
Instant payment benefits are what’s next in the business world. In a social structure where everything is a click away, payroll was falling far behind. People are interested in convenience, and money is no different. Waiting two weeks for a paycheck is simply unacceptable! People want to work their hours and get immediate payoff.
The average American is scraping for pennies at the end of each pay period. Nearly 78% of Americans are living paycheck to paycheck and 1 in 4 don’t have savings. Of the people who do have savings, 51% of them would have to dip into it if they missed one paycheck according to a study from NORC at the University of Chicago, an independent social research institution.
Apps like Earnin, Branch, MoneyLion, Flexway and DailyPay are looking to target the risks that come along with living paycheck to paycheck and give people the opportunity to have their money more readily accessible. But, is there a catch?
Manage Day to Day spending
If you receive your money at the end of each day, you become more familiar with your budget. Having an allotted amount helps you know exactly how much you have. You just worked those hours and its fresh on your mind how much it takes to earn those dollars. With instant access, you can decide what your daily financial need is and spend more wisely.
Good for Emergencies
People who live to the edge of their means may struggle with prioritizing spending and are at higher risk for financial damage. Without any savings, the average person isn’t prepared for monetary obstacles in their life. This means that they are more likely to have to go into debt for the unexpected (which we all know happens more often than we’d like).
Companies are finding that when they pay out their employees with instant pay, people are more likely to show up. 66.5% of DailyPay employees are motivated to work longer hours because they are offered instant payment. More frequent rewards leads to more intrinsic motivation.
DailyPay found that organizations that offer an instant payroll benefit can fill positions 52% faster. Turnover is also reduced anywhere between 41%-71%. Less turnover means more productivity and more savings.
There’s a Fee
Here’s the catch! Taking out money before your earned paycheck costs you. Some apps work by collecting interest while others work like an ATM, charging a fee every time you withdraw. It might not seem like a lot at the time, but if you use the app frequently enough you could be losing hundreds of dollars.
You remember how your parents used to make you do your homework before you went to play? Paying all your important bills first is just like that.
With these apps, all your money becomes play money. Having money quite literally at your fingertips encourages more unnecessary spending and impulse buying. Every small expense adds up big time!
Prone to Security Risks
These applications are new and haven’t been around long enough for serious problems to come up. With the internet being accessible to anyone, any account could easily get hacked. Cyberthieves could steal your money, your phone could get lost and malware or even regular updates could create issues in your access to the application.
Lack of Savings
If you are spending money every time you get it, you aren’t putting any away. All the interest that you would have gained through a savings account is instead being spent on receiving money instantly. Even saving $20 a week adds up to over $1,000.