Like an increasing number of hourly workers, Jenna Gallegos no longer has to wait two weeks for her salary. Instead, it can be paid for every day.
She uses a service called DailyPay to get money for the hours she already worked before payday. “It’s very convenient, especially if you have an emergency and need money right away,” she said.
Gallegos uses DailyPay a few times a week, but added that she sometimes takes too much money and later ends up in a hole. And she doesn’t like that she has to pay a small fee. Still, she’s glad it’s an option.
DailyPay is one of the many payday advance apps that have emerged in recent years that allow workers to quickly access their earned wages. Some like Earnin are available to everyone. Others, including DailyPay and others such as Branch, Even, and Payactiv, are offered to workers through their employers.
At a time when many companies are struggling to find workers amid the pandemic-induced labor shortage, some employers are considering offering these services as an added benefit to help recruit and retain employees. workers.
Supporters of these services note that they offer workers who live on a paycheck much better alternatives to payday loans, cash advances, late payment fees, and overdraft fees.
Consumer advocates warn that the services should be used with caution, especially since some of them charge minimal fees for initial transfers.
The Twin Cities area, which has been a financial services hub for decades, has seen some of these businesses take hold here.
In 2019, New York-based DailyPay opened a second office in downtown Minneapolis, which quickly grew to 150 employees and now houses its customer support and payment processing center. After raising an additional $ 175 million in a Series D funding round in May, when it was valued at over $ 1 billion, DailyPay now plans to add 50 more workers in the Twin Cities of ‘by the end of the year.
Meanwhile, Branch, a Minneapolis-based fintech firm that has gone from helping employees change jobs to accelerating payments to workers, plans to double its workforce to 200 by next year. . Branch also recently secured $ 48 million from private investors and a $ 500 million line of credit as part of a Series B financing round.
Jason Lee, CEO of DailyPay, says these services are growing in popularity as people have become accustomed to being able to transfer money whenever they want, such as paying a friend a few dollars through Venmo when they go out for a slice of pizza.
“As consumers we are all used to money flowing instantly and money being controlled in the palm of our hand,” he said. “What we want to do is create a world where minute by minute, hour by hour, day by day, you can control all aspects of your payroll the same way you can control all aspects of your checking account. . “
Last year, DailyPay hired one of its largest employers for the service: Minneapolis-based Target, which employs nearly 400,000 workers in the United States. He also works with other large companies such as Dollar Tree and Big Lots.
DailyPay charges workers $ 2.99 for instant transfer. For a transfer the next day, it’s $ 1.99 or free depending on the contract. Company executives note that it’s cheaper than some off-grid ATMs.
“It may not seem like much,” said Ted Rossman, senior industry analyst for CreditCards.com, but the fees can add up and reduce the money you could save. “It can be a slippery slope.”
While not technically a loan, Rossman said a charge of $ 3 to withdraw $ 100 over two weeks equates to an annual percentage rate of 78%.
But he said he understands why some workers may want to use these services in a pinch. “There aren’t a lot of good alternatives, which is why I think we are seeing this kind of thing popping up,” he said.
Branch, who works with companies like Kelly Services, doesn’t necessarily charge a fee to access salaries up front, but it does for instant transfers to an external debit card.
The goal, said branch CEO Atif Siddiqi, is that consumers do not have to use payday advances on a regular basis and that they build up a cash cushion.
In financial services, these companies are known as the Access to Earned Wages industry – and they are largely unregulated.
Some consumer advocates want the US Consumer Financial Protection Bureau to overturn its decision not to treat these services as credit providers, exempting them from certain consumer protection laws.
In the meantime, employers say these payday advance apps have become very popular with their employees.
Since it started offering DailyPay last spring, around 100 of Mary T’s 900 employees have used it in any given week, said Jason Tjosvold, executive director of the home and health care provider. based in Coon Rapids.
Mary T previously offered loans to employees who needed emergency funds, but some workers found the process cumbersome and didn’t like how long it took.
“It’s hard for people to reconcile how they can get a ride or order a meal and get it in half an hour,” Tjosvold said. “But if you work on the first Sunday of our pay period, you don’t get paid until 20 days later, so [that is] basically three weeks. “
Mary T is in an industry that continues to struggle to fill positions, a challenge made worse by the pandemic. So adding DailyPay as an option was also an additional recruiting tool besides other things like referral bonuses, increasing his 401 (k) match and granting more vacation time.
Mall of America, which pays its roughly 600 employees twice a month like most employers, began offering DailyPay in 2019.
“Employees want choices and the ability to access their pay when they want,” said Carrie Wright, vice president of human resources at the mall.
About half of the mall staff have signed up for DailyPay, which means they’ve logged in and created an account. And about a quarter of them are considered engaged users, doing an average of 2.5 transfers per week, the typical amount being $ 100, according to the mall.
Yet not everyone is rushing to use these apps. Zetta Sharkey, a guard at the mall, is not interested in receiving part of her salary sooner.
“I’m old school,” she said, adding that she prefers to be paid every two weeks.
That way, she isn’t tempted to spend it right away, which she added could happen a lot since she works in a mall.