The Promise of On-Demand Access to Earned Wages

For an array of reasons, many people find themselves in need of cash before their next payday. Until recently, those who could not borrow from family or friends typically had few options: high-interest credit card debt, predatory payday loans, costly overdrafts, and the like. None of these addresses one of the root causes of paycheck-to-paycheck shortfalls: the rigidity of paydays themselves.

Every time an employee works, they earn wages, accruing pay for 40 hours, 80 hours, or even up to 184 hours (if working full-time at a job that pays monthly) before receiving their paycheck. Such extended periods between paychecks can create challenges and household budget shortfalls, especially for low-wage workers who must contend with regular financial pressures and minuscule margins of error.

A recent market-based solution has emerged with the belief that wages earned should be available to workers on demand, regardless of when payday is. Providers of earned wage access (EWA) and direct-to-consumer (D2C) advances say they bridge the gap between paydays without the high fees of other market offerings, enabling users to pay bills on time, save more, and increase financial stability.

This issue brief:

• Explores the challenge of short-term illiquidity for household finances;
• Evaluates the promise of EWA and D2C advances for addressing this challenge;
• Considers the business models of these products and their behavioral implications; and
• Outlines the need for regulators and lawmakers to define the scope of these products so that they can continue to innovate and develop.