How banks can tap demand for earned wage access | PaymentsSource

As consumers and employers embrace changes in traditional payroll, banks have more reason to consider products that provide salaries outside of pay periods.

The market for employer-partnered earned wage access , or EWA, products continues to accelerate quickly, according to data from the Consumer Financial Protection Bureau, which estimates that the number of transactions processed by these providers spiked by over 90% from 2021 to 2022. More than 7 million workers accessed roughly $22 billion in 2022, CFPB data shows.

Some banks, including Capital One, Regions, JPMorgan Chase and Wells Fargo offer free or low-cost wage access to direct deposit customers up to two days earlier than their traditional payday, but it’s not the same as EWA, which has generally been a fintech-driven product.

With EWA, workers can access their earned wages when they want them, generally for a fee that’s lower than what they’d pay for a payday or title loan. For illustrative purposes, the annual percentage rate for a typical employer-partnered earned wage cash advance could be 109.5%, based on average usage and cost patterns in data collected by the CFPB, though standards from the American Fintech Council, an industry trade group, say that a “no cost” option must also be offered to all EWA users.

Here’s what banks need to know about EWA and its rise in popularity:

Potential partnership opportunities for banks

There are around 33 million small businesses in the U.S. and many are looking for help with payments, accounts payable, accounts receivable and payroll processing, said Tiffany Haynes, chief operating office of Fingercheck, which provides automated payroll and human resources for small businesses. Many of these small businesses are also interested in providing EWA to their employees, she said. 

That’s where bank partnerships can come in — to offer payroll services, including EWA to small-business clients. Fingercheck, for example, partners with Incredible Bank on payroll services for SMBs and has others in the pipeline, Haynes said. “It’s becoming more of a norm for employees. They see the value in it, and they are starting to see it as a benefit,” she said.

While not all financial institutions have embraced the idea of EWA, more are starting to, since it “helps to strengthen banks’ position as an innovative and customer-centric financial institution,” Rob Nardelli, director of commercial banking at DailyPay, wrote in an email. DailyPay, an on-demand pay platform, said its banking partners include PNC Bank, TD Bank, Santander and Bank of Montreal.

EWA provides “clients with a competitive edge in a tight job market, while driving customer loyalty and capturing new business opportunities,” he wrote. In some instances, employers cover the fees for their workers to use EWA, though most don’t. The CFPB estimates employers in a sample survey subsidized less than 5% of total fees.

State regulation varies

More states have been carving out earned wage access legislation as industry participants and regulators debate how the finance product should be classified. 

Six states including Connecticut, Kansas, Missouri, Nevada, South Carolina and Wisconsin have legislation to regulate EWA products. Most require consumer disclosures and licensing provisions for providers, but do not enforce an interest rate cap. By contrast, Connecticut defines EWA as small-dollar credit and has implemented a usury cap on EWA. This has forced providers out of the state.

CFPB guidance remains unclear

In July, the CFPB proposed an interpretive rule saying that many paycheck advance products are consumer loans subject to the Truth in Lending Act. Many industry participants, including the American Fintech Council and the Innovative Payments Association, disagree with this assessment. 

The comment period for the CFPB’s interpretive rule ended in August, and the agency has yet to release a final rule, which isn’t surprising given all the turmoil that’s been happening there in the early days of the second Trump administration. The president and the Department of Government Efficiency, or DOGE, with Elon Musk at the helm, have made efforts to control and possibly shut down the agency created to protect consumers in the aftermath of the 2007-2008 financial crisis. Earlier this month, Russell Vought, the new acting director, ordered the bureau’s staff to stop working and ‘stand down.’ 

If passed, the CFPB rule would make it easier for banks to participate in the EWA space because they, unlike many fintechs, already comply with the Truth in Lending Act, said Aaron McPherson, principal and founder of AFM Consulting. “I think it’s something banks should consider. If the interpretive rule becomes final, that would make it easier for banks to compete.”

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