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Payments

Early Wage Access – Providing More Value to Members

By: Tom Bennett, Principal, Advisors Plus, PSCU

In our previous blog on direct deposit, we focused on how its value contributed to record growth in debit volumes, as well as its importance to primacy with members. While Automated Clearing House (ACH) continues to be the primary platform that payroll funds cross, the value a credit union receives from money flowing into an account is applicable to other situations. Credit unions should consider the value of money flowing into an account in their design of products and services in order to help their members stay financially healthy, as well as to stay competitive with larger financial institutions.

Over the past few years, focus in the fintech field has led to a number of advances in financial services, all capitalizing on a “weakness” in the existing value exchange with members. Some of these advances include:

  • Buy Now, Pay Later (BNPL) capitalizes on credit card intricacies and allows consumers to pay over time without adding interest-bearing balances to their account
  • Early paycheck access, posts ACH deposit files when received (typically two days early), with minimal risk versus waiting until a future date, and benefits consumers by providing quicker access to their funds
  • Overdraft thresholds, commercialized with names like “Spot Me” by Chime, allow small-dollar overdrafts for no fee, providing liquidity to consumers

One growing area of advancement is early or earned wage access (EWA), which is the ability for an employee to access the money they’ve earned before their scheduled payday. Historically, wage earners have been paid on set schedules. Most wait at least two weeks for pay, some even for a once-a-month paycheck. EWA offers access to wages independent of formalized paydays, usually on a more frequent basis and, in some instances, even daily. This is very common for services like Uber, Doordash or Lyft, where the individual is absorbing cost (like fuel) while waiting to be paid. Typically, these funds flow into the financial institution on the card rails, either as a Visa Direct or Mastercard Send transaction. The technical term for these direct transfers of funds to debit card users is Original Credit Transactions (OCTs). But in the pure sense, they represent the flow of funds into a checking account.

Like direct deposit via ACH, the same intrinsic value applies. Equal consideration should be given to the tactics that encourage use of direct deposit. As an example, and while we see this infrequently, if a checking account requires direct deposit to waive a monthly fee, why not expand the qualifier to include EWA? This strengthens the overall value proposition of the account, underscores the value of money coming in and enhances the appeal of the account to Millennial and Gen Z generations, who are typically more likely to be gig workers.

By recognizing the value that current and prospective accountholders provide to a financial institution via depositing funds through EWA, credit unions can improve the financial health of their members and drive debit volume growth while better positioning themselves in the competitive market.

Tom Bennett is a Principal Consultant with the Checking and Debit Card practice at Advisors Plus. Tom advises credit unions on ways to enhance portfolio growth and profitability through P&L and key metric performance analyses, competitive product assessments, and industry and peer benchmarking reviews. His combination of consulting knowledge and direct experience provides an informed and unique perspective to solve the challenges of our clients.