Earned Wage Access Emerging as a Competitive Requirement

CUES member Elizabeth Sharpe recently shared with the CUES Net member community that a couple of her members had moved their accounts to Chime “because of the early availability of their funds. Some regional banks in my area (Memphis) have begun early access too.” (Chime is a fintech that partners with regional banks to provide certain fee-free mobile banking services.)

President/CEO of HealthNet Federal Credit Union, Cordova, Tennessee, Sharpe says that her $58 million organization is talking about posting “our ACH credits when we receive them.”

Posting ACH credits on receipt rather than waiting a day or two and posting them on the posting date is emerging as a competitive requirement in today’s financial services landscape. Several other CUES members shared with the CUES Net community and with the author in follow up emails how they do this. They join the ranks of many financial services players, including Chime, One, Wells Fargo, MoneyLion, and Earnin. (Here’s a Nerdwallet list of 32 doing it.) 

It's important to distinguish earned wage access with earned wage advances. While earned wage access means early access to direct deposits when that’s possible, earned wage advances “are loans—an advance on future pay not yet due, repaid on payday,” according to an April 2023 brief from the National Consumer Law Center. How early such advances can be taken, what happens if an employee with an advance quits and other such details depend on the guidelines of specific programs.

“Industry lobbyists are pushing exemptions from lending laws for EWAs and tip-based advances,” the brief continues. “These exemptions would enable new forms of fintech payday loans and also allow traditional payday lenders to claim that their loans, too, are based on earned but unpaid wages.”

Earned wage advances “are a form of payday loan,” the brief asserts. “Fees appear small but can pile up in hidden ways and drain low wages.”

Making Earned Wage Access Available to Members

$2.1 billion Abound Credit Union, Radcliff, Kentucky, brands its earned wage access offering as “Prompt Pay,” according to CUES member Jake Darabos, CPA, chief finance and administration officer. Darabos says the idea for this service came from President/CEO Raymond Springsteen, also a CUES member, who had worked for other military-focused credit unions before coming to Abound CU.

“Many military credit unions have used similar programs for years to help their members,” Darabos says. “He implemented Prompt Pay in 2015 to assist our members.”

Prompt Pay is driven through the credit union’s ACH system within its Fiserv Datasafe core system. 

“The process is relatively simple,” Darabos says. “Our operations team was able to automate the process by embedding prompts into the ACH system. Each day when ACH deposits are processed, the system looks for any ACH deposits with a settlement date within the next two business days. Without Prompt Pay, those transactions would sit in the ACH warehouse until the settlement date, but we post them up to two business days early, as long as we receive the record from NACHA/Federal Reserve.”

Training front-line staff about Prompt Pay was relatively simple, he notes. 

“It mostly centered around making sure that team members understood how the ACH clearing house works, wherein ACH originators typically provide ACH information a few days prior to the final settlement date, and how we use that information to provide the deposit earlier.”

The program is automatic for all members receiving ACH deposits. “We branded the product as ‘Prompt Pay’ and consistently … [promote] the feature in checking account advertising as a way to ‘get paid early,’” Darabos adds.

Member feedback on the service has been positive. “Members appreciate getting their deposits earlier to help prevent budgetary constraints and reduce the need to rely on payday lenders or others to make ends meet before payday.”

The most complicated part of Prompt Pay, Darabos says, “is within accounting, where we have to balance the amount of deposits given to members early and ensure that those funds are later received from the Federal Reserve on their settlement dates.”

CUES member Jennifer Rue, JD, CIA, NCCO, shares that her credit union, $833 million Financial Center First Credit Union, Indianapolis, rolled out earned wage access to the membership during the summer of 2023.

“We post ACH credits to member accounts when we receive the ACH notification rather than the posting/funding date,” she says. “This generally allows members access to their direct deposit funds one to two days earlier. There is no fee to our members for the service, and every member is automatically opted in.”

Early Wage Advances as an Employee Benefit

CUES member Pamela Blackburn says she had in previous roles investigated offering early wage advances to staff members as a benefit of employment. Blackburn is now SVP/chief people officer at $1.2 billion University Credit Union, Los Angeles.

Blackburn says when she was an executive with fintech companies, staff members would ask to take money out of their 401(k) or for an advance on their pay. She said she could give them a “lecture about financial planning” then, many times, approve the advance.

During her tenure, she spoke with an organization that would charge $3 per employee per month to provide the opportunity for staff members to receive their pay early. Then, when the employer ran payroll, the employee would pay the advance back over time or in one lump with no interest or fees.

“It was a great deal for employees,” Blackburn says, noting that signing up for this service would help an employer avoid having to process salary advances.

But in the long view, Blackburn had reservations about offering such a service. “My concern was people could just access their pay whenever, earn a day or two and get the money out,” she says. “It’s actually feeding bad habits, so we decided not to go with it.”

Many companies are already doing it, however, and the lines between earned wage access and earned wage advances can be hard to discern. The Financial Brand reports that PNC Financial, Santander and TD Bank all work with DailyPay to offer earned wage programs. Walmart, Target and McDonalds do as well.

Citizen Bank’s 2022 Payments Pulse survey found that seven in 10 middle-market companies were offering earned wage access to some employees, according to this article, which is using “earned wage access” language to refer to advances as well. Another 24% said they were planning to implement earned wage access soon, leaving a mere 5% of respondents saying they had no plans to offer such a program. 

Interestingly, one survey found that many young people may want this service. In a 2022 survey of 3,500 workers by global staffing firm Aquent, 83% of respondents ages 18 to 24 said “EWA benefits” were slightly or very important to them.

Blackburn says a previous company piloted an EWA program for employee for months. Of 480 employees, 20 used it, and there was one default. An additional concern was that the company paid $3 for every employee, including those that didn’t use the service.

“There are a lot of people who love this,” Blackburns adds. “If I hadn't been in the mix, that fintech would have introduced it. I'd rather invest time and energy in sitting down with every person we have and taking them through their options … to make sure they don't overstretch themselves financially.”

Lisa Hochgraf is CUES’ former senior editor.