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Visa, PayActiv Launch Real Time Payroll

If rules were made to be broken, what better rule to break than the rigid two-week payday cycle? Visa and PayActiv have teamed up to offer on-demand access to earned wages, which Cecilia Frew, SVP and head of North America push payments at Visa Direct, says can be a game-changer for employees — and especially gig workers.

The gig economy has changed — and is still changing — when we work, how we work and, of course, how we get paid. Readers of this space may recall some stats at the end of last year, where the PYMNTS Gig Economy Index found that as many as one-third of workers in the U.S. have participated in the gig economy — and 85 percent would do more work if they were paid faster.

In general, whether talking about the gig economy or the traditional economy, the fight for talent is fierce amid unemployment rates that are at multi-decade lows. One way to lure workers and keep them is to pay them the way they want to be paid, which means breaking the rigidity of the two-week pay cycle.

To that end, Visa and PayActiv have entered an agreement to offer real-time access to wages earned. The companies said in a release today (March 7) that “the demand for instant access to earned wages has now extended to batch payroll,” and can effectively break the cycle that seems entrenched in the work world — namely, the two-week waiting period that marks the time between paychecks. The companies also said PayActiv partners can offer real-time deposits to employees’ accounts via debit card or reloadable prepaid card, using Visa Direct’s real-time push payments.

In an interview with Karen Webster, Cecilia Frew, SVP and head of North America push payments at Visa Direct, said the shift to instant access of funds spotlights the way the gig economy has transformed expectations about how we get paid, and how we juggle the vagaries of financial life. The companies noted that as many as 50 million Americans struggle to pay bills, and as much as 78 percent of workers live paycheck to paycheck.

“The gig economy has been an interesting factor when it comes to thinking about payroll,” Frew said, and the ways that 1099 employees are paid alongside W-2 employees. It’s a bit of a blanket approach, governed by the rule of the two-week payroll cycle, batch payments and ACH.

The typical payroll period, she said, “does not work for most people,” as evidenced by the fact that so many Americans live paycheck to paycheck. Simple reality shows that financial life is lumpy, and, in many cases, individuals must resort to payday or title loans to cover expenses and smooth out that lumpiness.

Webster noted research that suggests 82 million employees in the U.S. have had a problem getting paid at times. In some instances, the check was processed incorrectly or delayed. A staggering 66 percent of employees said that if their checks were delayed by a week, it would be “hugely problematic.”

Want another data point? The How We Will Pay study (also a staple in the digital pages of PYMNTS) stated that in an always-on connected economy, people want to get paid in real time — 30 percent of them, in fact. According to the findings, 27 percent of workers are happy with the way they get paid, which, of course, implies that nearly three-quarters are unhappy with the way they are paid. Clearly there is room for improvement.

Beyond stats, here’s an anecdote: Webster noted a Wendy’s franchise owner who said he experienced a 40 percent turnover rate, noting that it would cost as much as $2,000 to hire, train, onboard and pay workers. That all changed when he offered real-time payments for wages earned — reducing corporate costs, along with acquiring and retaining workers. It makes sense, Frew noted, when gig workers who also have QSR jobs may need to opt for the former (where they may get paid more quickly) to supplement income, taking a sick day from the fast food shift to make it all happen. It’s a ripple effect that hits employers and employees.

The Mechanics Of Instant Access

“Now,” Frew said of Thursday’s announcement between Visa and PayActiv, “people can get access to the money that they have already earned. This is not a loan; it is money owed to the worker that they are choosing whether they want to access it early or not.”

In terms of mechanics, she noted, PayActiv integrates directly with the employer. Employees download the PayActiv app and choose the ability to access funds early, linking to their debit card or to a new PayActiv Visa Prepaid Card, billed as the first general-purpose reloadable card that offers access to earned, but unpaid, income. That prepaid card, the companies said, is accepted at merchants that accept Visa debit cards, and can be accessed at ATMs and points of sale.

The PayActiv benefit is zero cost to the employer. There are no startup or implementation costs, no costs to enroll or cancel and there are never any recurring fees, the companies noted. If used, there is a flat fee of $3 for a weekly pay period or $5 for a biweekly pay period.

Rules in place at Visa (and for Mastercard Send, as well), said Frew, dictate that funds be posted and available within 30 minutes.

In addressing concerns that people might access their earnings early, spend it right away, then theoretically not have money for rent, she said a bit tongue-in-cheek that “people are pretty equipped to make those choices themselves. But there are often limits that are set.”

Instant access to earned, but unpaid, wages can be a game-changer, not just for employees, but employers, too. Frew noted that smaller firms often spend time cutting checks for employees who then take time out of the day to tote those checks to the bank.

“That can really change Friday afternoons for those workers,” said Frew. “If, via Visa Direct, that worker can get a push payment directly to their bank account — which is where they want the money, electronically in real time — to spend, everybody wins.”

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 edition of the FI Innovation Readiness Playbook examines how the innovation playing field is leveling as small FIs implement bolder strategies and larger banks adopt more measured approaches.

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