How employers can use FinTech for financial well-being

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Through Aries PalaniappanFounder and CEO, Earnin

Almost two thirds of the US population lives paycheck to paycheck, even among those earning six figures. These employees often rely on payday loans, advances, credit cards, and overdraft extensions to make ends meet while waiting for the rigid two-week or four-week payday. This pay cycle is obsolete. It was already founded in the industrial revolution. Before this period, people were paid every day. During the Industrial Revolution, the industrialists were more powerful than the workers and decided to switch to a batch system of pay because it was more efficient for them. The workers had no choice. If the work had been heavier they would have been paid two weeks before the start of work. To put that in today’s context, imagine if Google told you it would share your search results with you in two weeks, or wait two weeks to watch your favorite movie on Netflix?

Today, inflation and stagnant wages continue to exacerbate the financial burden on individuals and households. To keep up and remain competitive in a tight job market, companies need to take a closer look at the benefits that are most valuable to workers today. Employees need to feel empowered, and one way to do that is by giving them access to their earnings as soon as they’re earned, removing the hurdles of cash flow timing from standard payment cycles.

Employee satisfaction directly affects a company’s bottom line and helps create a positive corporate culture. In 2019, John Hancock estimated that the cost of financial stress per employee per year was $1,918 in lost productivity and absenteeism. That number is now at $2,412. This has a direct impact on companies, as financially stressed employees are 77 percent more likely to switch employers and spend 2-5 hours a week taking care of personal finances at work, which also impacts productivity. When employers provide a solid foundation and the right resources to foster financial health, employees can focus on pursuing larger goals and objectives that will strengthen their organization.

As employers look for solutions that support employees and their holistic well-being, those who address the challenges associated with the speed of money will increase employee happiness, motivation and productivity, and experience better retention and recruitment.

Paycheck to paycheck living: It’s more than you’d expect

An unexpected financial challenge, like a flat tire or health emergency, can make cash flow particularly tight. That’s why financial wellbeing solutions are vital for those who live paycheck to paycheck. People get paid every two to four weeks, but bills, subscriptions, and emergencies don’t wait for payday. This reality means that when workers are unable to access income, they are forced to resort to payday loans or pay high bank charges such as overdrafts and insufficient funds. In addition to the fees, people may have to forego more work because they can’t afford childcare or a car repair that week. The cycle continues.

This financial stress can weigh on them and directly affect their work. Financial stress on employees costs employers $4.7 billion per week in lost productivity. Financial well-being must be a top priority for businesses, particularly those that hire and retain large numbers of hourly workers who may need additional support and resources to meet their financial goals if their access to pay is limited to the two-week window .

A report by JD Power examined how inflation has caused stress among Americans and therefore prompted them to seek higher wage frequency. The report found that 51 percent of workers would consider changing jobs just to receive more frequent payments, including 76 percent of hospitality workers. Living from paycheck to paycheck presents unique challenges that can be addressed when employees have access to the pay they deserve.

The role of FinTech solutions in financial well-being

Fintech solutions geared towards Earned Wage Access (EWA) free workers from rigid payment cycles and give workers access to their money as soon as they earn it. EWA allows workers to access and save their earned money without mandatory fees or recourse. More and more companies are choosing EWA solutions because they improve employee performance and increase employee retention, especially in the era of the Great Retirement.

During the pandemic, a industry study found how early access to wages affected people, noting that 92 percent of employees felt the services helped them meet at least one of their 2020 financial goals. Additionally, 88 percent of respondents believed that access to wages like those earned during the pandemic was essential to their financial well-being.

Employees want to know that their overall well-being, including financial well-being, is their top priority for their employers. This is especially true since not many other aspects of life happen every two weeks. The world no longer functions in this cycle as on-demand and streaming are now the norm.

The way forward to financial empowerment

Employers have discovered that access to financial support can lead to significant improvements in employee retention. Additionally, employees who struggle with less financial stress are more productive and able to make a positive impact on employers, individuals and the economy at large.

To counteract this, companies must set and offer competitive salaries based on market changes in the cost of living due to COVID-19. Next, it is important that the fintech solutions offered by employers are affordable, easily accessible and offer workers more choices tailored to their needs. This can be extremely helpful in supporting those who need it most. Offering EWA can be beneficial for both the employee and the employer as the employee gets paid right after work and the employer ensures job satisfaction which increases productivity.

In addition to expanding financial support, HR leaders must offer financial resources related to budgeting and savings. To bridge the payday gap, employees need access to tools that create personalized financial plans and manage expenses, savings, and more. Technological tools to track income and expenses will also be valuable in improving a person’s financial health.

As more companies struggle to hire and retain employees in a competitive job market, new service offerings are an opportunity for companies stand out from the competition. Offerings that put employees in control of their finances while addressing their individual financial needs can be beneficial in achieving their goals.

About the author
Ram Palaniappan is the Founder and CEO of Earn. He’s a critically acclaimed financial tech entrepreneur whose mission is to create products that make money work better for everyone. Earnin aims to free people from the traditional payment cycle and put them in control of their money, starting when they earn it.

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