"Financial technology firms" and clueless left wing lawmakers are now attempting to change the infrastructure behind payday so that workers get paid "faster", according to the Wall Street Journal.
There is a group of technology start ups with more than $300 million in venture funding that have worked on ways to "front workers' wages" – (also known as a payday loan?) – and then collect later when payday arrives. They are experimenting with using certain types of fees or selling companies' future payroll obligations to investors. Some start up companies are also advertising faster paycheck access.
And these new
payday loans super technologically savvy inventions are, of course, being back by Senator Elizabeth Warren and Representative Ayanna Pressley, among other Democrats. They’re looking to push change that will get workers paid a day or two faster, which they claim could make a "big difference".
In other words: they want to get a broke consumer their money faster, so they can spend it and stay broke quicker.
Aaron Klein, a fellow at the Brookings Institution, noted that there's a program at Wells Fargo that waives overdraft fees for people who receive a direct deposit the day after spending more than they have. Under this program, more than 2 million customers have already avoided fees in 2018.
Klein believes that slow payments can "cost workers billions of dollars a year in overdraft fees". We’re wondering if he has ever thought of the simple idea of people just not spending money they don’t have.
Meanwhile, $30 billion is lent out every year in payday loans and functions that once took days or weeks to manage involving payroll can now sometimes take minutes using software.
And even though direct deposit has become the new norm, payday could supposedly still be faster. Senator Elizabeth Warren has taken exception with the fact that paychecks sometimes "take a day or two to clear". She’s been advocating for the Federal Reserve to build a new payment network that can move money instantly. Because of course, what we need is the Federal Reserve handling our paychecks and getting involved.
But it looks like that’s what’s going to happen.
The Federal Reserve said earlier this month that it plans to build this type of network over the next few years to compete with other real time systems offered by banks. Other banks that have built their own instant payment systems have lobbied against it.
Today, the norm is for companies to put their payroll through a couple of days early to accommodate the delay in clearing for their employees. And so, with instant payments, companies might just hold onto employees' money a day or two longer.
ADP held an average of $24.3 billion of money in transit from companies but not yet paid to employees in the fiscal year ending June 2018. That generated $466.5 million in interest revenue for them. The company is now starting to work with clients that want faster options for pay and is discussing it with lawmakers and regulators.
For example, right now ADP works with a start up company called DailyPay, Inc. which competes to offer instant pay access to employees. ADP is also working on starting a program that will enable workers who are viewing their pay online to explore new ways of getting access to their money. But of course, just like with any service, there’s costs associated with it. ADP might earn less interest for holding cash and more fees for faster service, but the shift is still in its early days.
Some experts view these programs as intermediate steps, with the ultimate shift being companies just paying workers more frequently. Now, gig economy workers, like those for Uber, can get paid up to five times a day by getting the money out put on debit cards – but few other workers have that option.
About 60% of US private businesses pay employees every two weeks and another 5% pay monthly.
Todd Baker, a senior fellow at Columbia University’s Richman Center for Business, Law and Public Policy said:
“You’ve got an enormous embedded infrastructure of payroll tied into doing things, and the cost of replacing it is pretty significant.”