That instant payments have been a significant boon to workers in the gig economy is almost inarguable. A glance at the data demonstrates why. According to a study released jointly by PYMNTS and Mastercard, a large segment of gig workers live paycheck to paycheck, and more than a third of them wait at least a week for their wages. Getting paid faster can often mean the difference between staying ahead of their finances and getting buried under a high pile of overdraft and late fees.
But what Mastercard has come to appreciate, Senior Vice President of Digital Partnerships Adam Granoff noted, is that gig workers aren’t the only segment of the workforce trying to manage shortfalls between regularly scheduled pay periods.
“There has been a lot of focus on workers entering the gig economy. But what we know is that the cash flow issue and financial stresses gig workers face are often also faced by hourly workers — especially those who don’t have consistent hours,” Granoff told Karen Webster shortly after the announcement of Mastercard’s partnership with Branch to provide a digital bank account for consumers who work for hourly wages.
A Multipronged Approach To Financial Stability For Gig Workers
The trouble with hourly work and the cash flow concerns that arise from it, Branch Founder and CEO Atif Siddiqi said, is the way it tends to bring swaths of troubles along with it. A worker is waiting on a Friday paycheck — and has two utility bills due four days before that and a bank balance in single digits. That means the customer can choose to pay late or overdraft, pay $60 to $90 in fees and start the next pay cycle behind and more likely to miss or pay late, thus setting them back further behind. It is a vicious cycle that often sees one cash flow problem blossom into lots of them.
Branch’s basic idea for starting to solve those problems — and cut off those negative cycles — is giving customers as many tools to stave off those cash flow pitfalls as they have problems caused by them.
Branch started as something like a gig work marketplace for hourly employees, instead of contractors, looking to pick up more work where they are already employed.
“We started out trying to help hourly workers earn additional income by grabbing additional shifts. As it turned out, in restaurants and retail stores, there were often open shifts available for coverage, but there was no efficient way to find it or sign on for it. It was basically an analog process,” Siddiqi said.
In digitizing the process, Branch realized that it is not enough to give customers a chance to pick up more work, Siddiqi said, but also to help them understand when they might need to work some more. By tracking their income flow, expenses and scheduling, the system can alert a worker when they are at risk of running into an earnings shortfall so they can pick up extra shifts.
From there, the next natural product extension — the product the firm has announced with Mastercard —was to extend a new marketplace service to its employee users, he said: “Why not provide a small amount of the wages they’ve already earned that they clearly need?”
To make that possible, through Mastercard’s partnership with Branch, when an hourly worker goes to request their pay advance within the Branch app, Mastercard Send disburses the pay advance in near real-time to the worker’s debit card, helping to provide access to the wages when the worker needs it. In addition to this, Branch and Mastercard have introduced a digital bank account allowing workers facing a cash-flow crunch to have as much as 50 percent of their already-earned wages deposited to their Branch account in advance of the scheduled pay cycle. This is provided free of cost for those employees. To do this, it leverages the power of Mastercard Send to push funds instantly either to their Branch debit card — or any other debit card they choose. Branch hopes consumers choose the digital bank account it offers but isn’t holding their funds force it.
Instead, Branch provides free options that are merely desirable for the consumer to use. The transfers are free, Siddiqi noted, because the goal isn’t to make money by biting into an employee's paycheck, as that is antithetical to the reason Branch was founded — to help workers put more of their paychecks into savings instead of into fees.
“Charging a fee for collecting a paycheck kind of defeats that point,” he told Webster.
Overcoming the Objections
A concern most often raised with providing workers with early access to wages earned is whether doing so could harm workers more than help. Critics contend that customers could find themselves always advancing pay to make up for the last advance.
The problem with that objection, both Granoff and Siddiqi said, is that it is wholly inconsistent with how they see consumers using these products. The hourly workers Branch works with (and the gig workers whose instant pay Mastercard Send enables) don’t ask for early pay merely because they can. What they see in the vast majority of cases is that the worker has a specific need that has caused a financial shortfall. A car needs repair, the refrigerator stopped running, a kid broke a tooth at karate class — something that needs to be paid for right now, and the scheduled payday is another 10 days away. Hourly workers, Granoff noted, are statistically similar to gig workers in these situations — they often live paycheck to paycheck, they don’t have savings and they lack access to mainstream credit. A sudden expense can be catastrophic.
Moreover, Siddiqi said, even when the expense isn’t catastrophically significant, even a small miscalculation on a bill can set off a very costly chain reaction. What the workers who leverage Branch for early pay are doing in many cases, he said, is advancing the $50 they need to pay their utility bill so as not to get hit with the $35 overdraft charge or the $40 late fee if they can’t pay on time.
“If you look at the data, you see the majority of overdraft fees are made on original payments of $20 on average, or for people buying gas to get to work,” he said, noting that protecting consumers from accessing their funds early isn’t so much helping them as rewarding the people who charge them fees when their funds come up short.
And not only is it better for the worker, but it is also better for the employer, who generally sees workers now signing up for more extra shifts. It makes sense, he said, if a worker knows they have a big repair bill coming up and that they can access funds from work immediately — that worker has every reason to start building up those funds. Plus, Siddiqi noted, an employee who knows they have the money to buy the gas to get home from work that day is going to work a lot better than one who does not.
Hourly employees, Siddiqi and Granoff said, are smart, if underestimated people. They know better than almost anyone exactly how much money they have — and are looking for tools to grow that amount.
“With shift management, they can earn more income; with budgeting tools, they can manage it better; and with instant payments, they can wipe the uncertainty out of their cash flow,” Siddiqi said. “Looking at it holistically, our main driver as a company is how do we continue to grow that daily account balance. Because the solution that lets everyone get more of what they need — we really believe that is the right solution for the future of the workforce.”