Financial Inclusion

Startup Offers ‘Paycheck Insurance’

As banks and nonbanks look for alternatives to payday loans, financial-management startup Even is working on a novel way for people whose incomes vary to pay their bills during lean times, according to American Banker.

Even’s service, which is currently in invitation-only pilot mode and plans to launch fully later this year, is designed for hourly employees who aren’t sure how many hours they’ll work each week, self-employed service employees such as Lyft drivers, and other irregular-income workers.

After the user links the service to a checking account, Even automatically tracks how much income users make, based on historical data, and calculates an average income. When a week’s pay is higher than that, the service puts the extra money in a savings account. When cash flow is lower, the user can take out an advance against his paycheck without charging interest.

The user pays a $5 weekly fee for the service, which the company describes as insurance for paychecks. The $260 annual cost, which could represent 2 percent or more of a user’s annual income, may still sound more appealing than the cost of several payday loans per year. Almost one-third of Americans experience income variations, even though most people in that group work full time, according to a 2013 report from the Federal Reserve.

Other startups are also looking for ways to smooth out pay cycles even when their hours are irregular. For example, FlexWage positions its services as an employee benefit, while Activehours asks its users for tips instead a fixed fee. (Activehours already has users who work at JPMorgan Chase and Bank of America.)

And all low-end financial-management services that compete with payday lenders run the risk of regulatory issues as the government continues its crackdown on high-interest-rate payday loans. There’s also no guarantee that users won’t have as many problems with a financial-management service as without one.

But startups aren’t the only ones working on the payday-loan problem. According to The Washington Post, some churches are beginning to help debt-plagued members, who often are already in debt to payday lenders. The church typically puts up collateral for a credit-union loan for the member, who then pays back the loan at typical credit-union rates.

——————————–

Featured PYMNTS Study: 

With eyes on lowering costs to improving cash flow, 85 percent of U.S. firms plan to make real-time payments integral to their operations within three years. However, some firms still feel technical barriers stand in the way. In the January 2020 Making Real-Time Payments A Reality Study, PYMNTS surveyed more than 500 financial executives to examine what it will take to channel RTP interest into real-world adoption. Here’s what we learned.

Click to comment

TRENDING RIGHT NOW