On-demand pay programs could spell ‘the end of the payday’

More Australians are using on-demand pay platforms to access their wages earlier. See how they work and the benefits.

Earned wage access programs are no longer just for cash-strapped Aussies struggling to make ends meet – middle to high-income earners are taking advantage of on-demand pay to significantly save on their mortgages.

The number of Australians using on-demand pay platforms such as InstaPay and Paytime has skyrocketed in the past year, as costs of living continue to bite.

The programs allow workers to receive their pay as soon as they earn it rather than wait until their usual payday, providing a lifeline to those battling against unexpected bills and other financial emergencies.

But a growing number of Aussies are now also recognising other benefits of EWA programs – namely the ability to make more frequent wage deposits into mortgage offset accounts, thereby reducing interest repayments and shortening the life of their home loan.

“This (EWA) is a massive opportunity for middle to high-income workers to put their money to work for them sooner. It can absolutely work for people that are looking to get (financially) ahead,” says Rob Dunn, managing director of benefits and payment at Employment Hero, which is behind EWA programs InstaPay and InstaPay Daily.

“Someone accessing their pay daily … and streaming it through to their offset account could save $149,000 and take around four-and-a-half years off the life of their home loan.”

On-demand pay platforms such as InstaPay and Paytime have seen their users skyrocket in the past year.

SAVVY SAVERS

Worker demand for immediate access to pay has reached unprecedented levels.

InstaPay now has 250,000 Aussies signed up to its platform and has recorded $30m worth of pay transactions since it launched in 2018. Of that, $19m was transacted in the last year alone.

While costs of living are a significant factor in the growing popularity of EWA programs, so too is the number of savvy workers looking to improve their financial security, Dunn says.

With most pay cycles occurring fortnightly, Australian employers are holding $30 billion of earned but unpaid wages at any given time – money that could be put to better use by workers if they had access to it sooner, he says.

As well as helping with mortgage repayments, on-demand pay can reduce worker reliance on high-interest credit cards or risky Buy Now Pay Later schemes, providing short-term credit savings of up to $47,000, Dunn says.

“Accessing your own pay doesn’t attract the fees or interest in the way a credit product does,” he says.

“We hope, through time, having this option (to access earned wages) could spell the end of the payday.”

Jenny Peacock says being able to access her wage immediately has been a “lifesaver”.

PEACE OF MIND

Melbourne-based barista Jenny Peacock says being able to access her wage immediately after each work shift, rather than waiting until her normal payday, has been a “lifesaver” when it comes to paying the bills and making large purchases.

“The flexibility (EWA provides) allows me to make better financial decisions and live with greater peace of mind,” the 28-year-old says.

“I can also save more effectively and more often. Being able to make more frequent deposits means I accrue more interest on my bank balance in the long run.

“It’s especially handy if I need to put a little bit of my wages into my savings a few times a week, or even daily after I get paid.

“It also works well for paying my bills on time or handling any unexpected expenses on any given day.”

LIVING ‘DOLLAR TO DOLLAR’

Paytime chief executive officer Steven Furman is seeing an increasing number of “C-suites”, or executive-level workers, accessing on-demand pay, as well as more employers starting to offer it, in a bid to attract and retain staff.

Given most businesses require immediate payment for the provision of goods and services, he says there’s no valid reason why workers should not expect the same. He notes access to earned pay is a legal requirement in countries such as Spain, France, Italy and Portugal.

“This is not a payday loan or a pay advance. (Workers) have earned this money. It’s theirs,” Furman says.

“Whether it’s for that emergency situation of putting food on the table or for many C-suites to pay their mortgage or invest some money, they should be able to do (access) it.”

For many workers in today’s economic climate, on-demand pay is essential to staying afloat, Furman says.

He says those who are normally paid fortnightly typically rely on Paytime three times a month to get them out of sticky situations, while those paid weekly tend to seek access to earned wages about twice a month.

“Nobody is using this every day,” Furman says. “They’re using it for those unexpected expenses and emergencies – their child is sick and they need (money for) medication or their car has broken down and they need (to pay) to get it fixed.

“A lot of people are living week to week, or fortnight to fortnight, but it’s literally dollar to dollar. (EWA programs) are meeting a real need.”

MAKING YOUR MONEY WORK HARDER

The benefits of using earned wage access programs:

• Save money on your mortgage and pay it off faster. Assuming a $600,000 mortgage, with a 6 per cent p.a. fixed interest rate, workers who access their earned wages throughout their entire career (from ages 18-65 years) to make weekly mortgage repayments could save up to $149,000 over the duration of the loan. They could also reduce the life of the loan by about four-and-a-half years.

• Save on short-term credit. Using earned wage access to pay bills on time, handle emergency expenses and purchase essentials without having to rely on credit cards or Buy Now Pay Later schemes could provide short-term credit savings of up to $47,000.

Source: Employment Hero

Originally published as On-demand pay programs could spell ‘the end of the payday’