Imagine receiving daily paychecks for a day’s work. A new company is trying to change the way that people get paid. Everyone is used to waiting two weeks for their pay — you work and then wait two weeks to get your money. Waiting to get paid can be a hardship. Especially if you don’t have the funds to get you through those two weeks. Seventy-eight percent of Americans are living paycheck to paycheck, according to CareerBuilder, and three in four workers say that they’re in debt. Could daily paychecks solve that problem?
Tech startup Instant Financial is allowing workers in the service industry to request same-day pay. This option is meant to give workers who need money immediately a way to help address their financial situation. That money could help a person get by if they need to eat or just need gas money right away.
Workers can request up to 50 percent of the day’s pay within an hour of their shift. That pay gets transferred to their account on Instant Financial, which comes with a debit card that can be used at an ATM to withdraw the funds that they need. Employees using Instant Financial request an average of $27.
It is currently used by 50 franchises and corporate partners that, combined, employ around 150,000 people in the U.S. The app isn’t meant for workers to use when they’re making impulsive purchases — only when they need the money. It already sees results: a McDonald’s in Tampa, Florida reports that employee turnover is down 10 percent.
Why the long wait?
With all the technological advances made in the last decade, why are businesses still so slow with paying their employees? Besides everything still being based on using a paper trail, the big hold up has to do with banks. All transactions go through banks, and banks tend to process things very slowly.
When a customer spends money at a store using their credit card, this money isn’t instantly transferred to their account; it’s held up for several days before the store receives it. Banks use the Automated Clearing House system (ACH). This system dates back to the 70s — transactions are moved into massive batches and logged into a system a few times a day. This process slows down business, with companies having to check for deadlines constantly before money is transferred over or having to move money days in advance to make sure they have the right amount.
Different systems are currently being considered to speed up the process of doing business. One of the new popular alternatives is the system Bitcoin uses to keep track of transactions called blockchain. Blockchain is a type of ledger that contains different types of shared data such as transaction records, which are protected by cryptography and updated simultaneously. That means a financial record of payment can be seen immediately, cutting out a middleman. It would also reduce the time of doing business from weeks to hours.
Takeaway: Daily paychecks benefit millennials and low-income Americans
If you need money quickly but don’t have any, daily paychecks can be a quick fix for your situation. The purpose of the money isn’t to go out and splurge, but it can help in case you need it to get home at the end of a shift. Daily paychecks also allow workers to reconsider leaving their job when they need more money. The practice reduces turnover at companies and creates job loyalty because employees know they’ll be able to access the money they’ve earned right when they need it.
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