New developments could speed up instant payments in the U.S. Last week, the Federal Reserve announced it would give some competition to The Clearing House’s Real Time Payments (RTP) with its own real-time payments service, FedNow. This is a significant advance, considering it will be the biggest infrastructure upgrade since the ACH system went online in 1972.
The latest Faster Payments Tracker analyzes these new developments and explores how faster payments are changing how employees get paid.
Trucking Speeds Up
Truckers haul everything from produce to electronics across the country, and it’s not unusual for small operators to struggle with cash flow since they operate under slim margins. It can be difficult for them to make necessary purchases like insurance, payroll and refueling supplies while they wait for invoices to be paid.
Brian Carlgren, chief strategy officer of truck factoring company Apex Capital and Chief Information Officer Jerry Wallace recently spoke with PYMNTS about how faster payment solutions are key to keeping truckers on the road.
“It’s a very capital-intensive industry,” Carlgren said. “So, by the time you drop a load, you’re already out a lot of … money. To get the next load moving and fuel in the truck, [sometimes] you need to get paid on what you just delivered.”
Apex Capital’s trucker clients can receive funds onto company-issued closed-loop fuel cards or payments into their bank accounts. Since it’s not a given that truckers will have access to computers or the internet, these services are available via smartphone.
“By their nature, trucking companies are mobile. So, giving them tools that can be present with them [wherever they are] is key to [their] being funded fast.” Wallace said.
Gig and Hourly Workers Want Early Access
According to a report from Branch, a mobile app for hourly workers that also provides early wage access, 57 percent of hourly employees would find gaining early access to earned wages to be “very” helpful, and almost 80 percent of hourly workers said it would help at least somewhat.
Additionally, the latest Pay Advances report found that a majority of gig workers (51.8 percent) who use platforms that do not offer pay advances said they would consider switching to services that do offer them.
To this end, providing gig workers with pay advances could work as a competitive advantage for employers and hiring platforms.
“[We think] there is an opportunity to close the gap here and really match expectations — because the reality is these gig workers are also consumers,” said Silvana Hernandez, Mastercard senior vice president of digital payments, in an interview with PYMNTS. “They expect to enjoy the exact same treatment they experience as consumers in their working lives, which means there is an opportunity to modernize the way these workers are being paid.”
Though contract and gig work provides flexibility that traditional employment doesn’t, it comes with a paycheck-to-paycheck system where jobs might not line up one right after the other.
Gig economy marketplaces must compete for talent just like any other industry, which means they have to start taking these needs more seriously to stay competitive. This means accommodating workers that want fast, easy and sometimes early access to their funds.
“If you start addressing these needs and provide workers with peace of mind and stability by being more supportive, the platform will see the benefit of attracting more (and more loyal) workers. But there is also the fact that happier, more stable workers are also more productive workers. If you as a platform start taking away those top-of-mind economic concerns, you will have workers spending more time doing better work,” said Hernandez.
Quicker Payment for Quick-Service Restaurant Employees
According to the Faster Payments report, the quick-service restaurant (QSR) industry has a high turnover rate, as much as 132 percent for hourly workers and 50 percent for managers. That churn has been estimated to cost approximately $1,900 per back-of-house hourly employee, $2,000 per front-of-house hourly worker and $14,000 for managers.
QSRs are trying to mitigate this issue and are exploring ways to make work environments and compensation more attractive. Potentially, early access to wages and tips could be part of the solution.
In an interview with PYMNTS, Steve Barha, founder and executive chair of instant earnings access solution provider Instant Financial, explained how the QSR industry is especially suited to instant payments.
Employers who have implemented instant pay have seen a 25 percent reduction in annual employee turnover, according to Barha. “Specifically, employees stay at their jobs two and a half to three times longer compared to employees who do not have [Instant Financial’s] Instant Pay available to them.
Workers typically use the solution to access an average of $28 at a time, four to five times per pay period. The earnings are received on prepaid Visa debit cards, which can then be used at point-of-sale (POS) offerings. Instant Financial is exploring other channels and rails since workers have the expectation for receiving payment through consumer payment channels like PayPal and Zelle.