Is payroll financing the new payday loan? With Fintech Week London, The Clearing House & Income Group
It’s very easy for many new to the fintech space to think that fintech is an exclusive term for payments technology, and while there’s some truth to that, it doesn’t tell the whole story. history of fintech. However, in June, Fintech time seeks to indulge this belief as we seek to discuss hot topics regarding both sending and receiving payments, such as Buy Now Pay Later (BNPL), First Paydays and more.
Complete our focus on early paydays. we compare a new offer to come to market with an archaic old one. The offerings in question are salary financing and payday loans. With promising money to make ends meet before official payday, they share a lot in common. However, payday loans charged a lot of interest, which often kept those who used them in a vicious cycle where they had to take out another loan to pay off the interest, etc.
Although in theory salary financing, a general term for cash advances, schemes, or any other means by which staff can withdraw funds before their pay date, is one way to avoid needing to a payday loan, are they really so different that employees have to pay a fee to use the service? We reached out to the industry to get their perspective:
Payroll financing offers a competitive advantage
Jim colasanoSVP, Product Development and Strategy at The clearinghouse, examines the advantage that this choice can bring to a company: “The RTP network of TCH is only national for the moment. For employees who need access to earned wages, Early Wage Access (EWA) gives them another option to receive earned wages in a timely manner and gives employers who offer EWA a competitive advantage when they seek to attract and retain workers.
Payday loan challenges shifted to payroll financing
Ian WheelerManaging Director and Founder, Income groupdiscusses how the fees associated with financing salaries do not solve the problems of people who previously used payday loans, “Payday loans have played on people’s misery – offering a simple solution or a solution to many problems under underlyings, which we are all aware of. While payroll financing seems like the viable solution to payday loans, it also comes with hurdles. Many workers who relied on payday loans needed every penny to count. Paying workers up to £2 each time they want to access wage funding to withdraw their wages is unacceptable and affects welfare.The resulting challenges for payday loans have unfortunately shifted to funding for wages.
Viable in moderation
Raf From KimpeCEO of Fintech Week Londonnotes that a one-time fee isn’t the same interest, so as long as salary funding isn’t used too often, it’s good technology,” just like with many different products in the fintech industry. , the introduction of salary funding is a good thing, it gives employers something to brag about to potential new hires, showing the flexibility of the business, showing that it is up to date with the times and a strategy smart to spend, lend and invest. The problem with payroll financing is if it’s used regularly. Just like buy now, pay later (BNPL), when used in moderation, the technology is fantastic to relieve stress because people know they can afford what they pay for, however, if abused, users can easily find themselves in debt by paying late fees.
“Salary funding is similar. If used in moderation, the technology is ideal for alleviating short-term stress or creating investment opportunities, and the access fees will not be detrimental. If used too often, these fees will add up and that’s when the similarities to payday loans can be drawn.