Instant payment in a gig economy

ecommerce-2140604_1280More than a few factors account for the explosion of the gig economy. Perhaps most obvious is the fact that that rapid technological advances in the payments industry have made it possible. Another is the yearning many experience for independence and self-employment. Yet another is the relief the gig economy holds out for the unemployed and the underemployed. And there’s the change of pace it offers the bored-at-home.

Not to be overlooked is the solution the gig economy offers people who aren’t fond of being stiffed. Every year, bad checks alone cost merchants—and, therefore, consumers—an estimated $15 billion. The problem is big enough that some jurisdictions establish their own worthless check units.

But gig workers needn’t worry about bad checks or, for that matter, shoplifters and dine-and-dashers. Gig apps collect payment the moment an order is placed, all but eliminating the danger of being stiffed—not just for gig workers, but also for merchants for whom gig workers deliver. The payments feature of the gig economy lowers the cost of goods sold. Or, to put it another way, it increases profits.

Notwithstanding up-front payments to gig apps, many workers must still wait for payment from their gig app. Delayed payment can present a challenge for workers who rely on their gigs to make ends meet. And it’s a delay that, given the availability of instant payment, needn’t exist.

Which is why a number of gig apps now provide same-day payment to gig workers who want it. These include, among others, Uber, LyftGigwalk, and DoorDash. Altruism may account for part of the offering, but not entirely, for the gig apps take a larger cut in return. Gven the number of gig workers who willingly pay it, the increase appears not to be onerous.

Gig apps aren’t the only ones looking at more timely payment for workers. People who work for companies that have signed on with the app Even can access earned pay prior to payday. Employees pay a monthly membership fee to use the app, but according to Even’s home page there are no other charges:

We do not charge fees outside our monthly subscription … We do not charge interest on money you owe us … We do not sell you credit cards or bank accounts you don’t need. We do not earn interest on any money you’ve saved with Even.

Advances commensurately diminish the amount employees receive when payday finally arrives. The Even app, therefore, is not a means of spending more, but of being able to cover expenses that come due before payday.

To date, the biggest employer to play ball with Even is Walmart. As of this writing, over 300,000 Walmart employees subscribe to the service. The number of subscribers versus active users is likely close, because Even automatically un-enrolls anyone after two months of non-use.

A newer development in the gig economy is the practice of offering advances against anticipated earnings. A survey conducted by PYMTS.com and Mastercard found:

More than 84 percent of workers living paycheck-to-paycheck are interested in pay advances—to the extent that two-thirds of them would consider switching to gig platforms that offered them and more than half would be willing to pay fees of 1 percent or more.

It also found that:

More than 53 percent would use pay advances to cover bills and expenses, however, to a similar degree, they also believe that early payment would reduce overall financial stress and provide greater financial flexibility.

The data are not to be ignored, but one should put only so much stock in the percentages. Of those who claim they would switch, the number who actually would switch remains to be seen. As for gig workers reporting that they are “interested in pay advances,” and that advances would “reduce overall financial stress”—well, one could hardly expect anyone to say otherwise.

If you cannot help but wonder if there’s a resemblance between gig advances and the payday loan business, you’re not alone. PYMTS.com reports that New York State’s Department of Financial Services (NYDFS) “… has announced it will lead a multi-state investigation into alleged violations of state regulations of the short term lending industry, specifically in the area of payroll advances.” Yet:

The firms under investigation at present, however, arguably aren’t payday lenders—at least under the strict legal definition of the term. Instead of “loans,” these firms instead offer “payroll advances” which are designed to give consumers access to wages they have already earned ahead of their next paycheck. The NYDFS, however, is concerned that some of these firms have swapped out high interest for membership fees and “tips” that ultimately add up to being the equivalent of usurious and other illegal interest rates.

The article specifically cites Earnin. NYDFS seems to suspect that Earnin’s tips, membership fees, and charges for access to certain features may amount to onerous usury in a new suit of clothes. This one will be interesting to watch.

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