– By Author Josep Elias, Chief Strategy Officer of CloudPay. CloudPay was shortlisted in the 2021 SaaS Awards and was a winner in the 2021-22 Cloud Awards.
Most businesses are familiar with Software-as-a-Service. SaaS was the natural progression of earlier on-premise enterprise applications as they migrated to the cloud. As its foothold strengthened, SaaS has become today’s choice for most businesses. Continually evolving, its ability to support global requirements is unquestionable, and point SaaS solutions support myriad automated workflows in every conceivable business.
Yet, as companies have sought to operate across borders, some challenges were inevitable. In the case of financial applications – specifically global payments – these ranged from operational delays to data security worries and even cultural resistance at the local level.
Also inevitable was the rise of SaaS in consumer payments, as shown by the popularity of apps like Venmo and Stripe. This consumer expectation has led to another SaaS category, that of on-demand access to earned wages for employees, via a familiar mobile app. The concept of ‘earned wage access’ feels fair – the work has been done, why should the employee have to wait for payday? And the demand is real: EY research in 2020 found that 80% would use on-demand pay.
Ready Access, On-Demand: Earned Wage Access (EWA)
Businesses are missing a $1tn opportunity by paying employees monthly. According to EY, that’s the amount accrued in employer payroll accounts every day in OECD countries. With the advance of SaaS and payment technology, it is becoming possible to put these inactive funds to better use, in ways that will benefit businesses and their employees.
Employers have traditionally run payroll on a monthly or bi-weekly basis due to the time and cost involved. SaaS-based payments solutions make it possible to turn elements of employee pay into a self-service function.
This type of on-demand pay solution is known as Earned Wage Access (EWA). It runs similar to a bank account, through a web-based portal or a mobile app. Employees can log in at any time, see how much they have earned, withdraw a percentage of the wages they’ve already earned, and make an instant payment to a debit or credit card, 24/7. When paying to a debit card, the money arrives in the bank account immediately, unlike when making payments via the banking system.
EWA is run through a cloud-based global payments solution accessible to employees and linked to the employer’s payroll system. Employers can customize rules and restrictions to ensure the system is used responsibly. For example, the number of transactions allowed in a pay cycle and the percentage of wages available to withdraw are limits set by the employer.
Powering Pay with SaaS: Because Pay Matters
People look for instant gratification in almost all areas of their lives. Consumers have come to expect entertainment, news, education, and financial services on-demand. So on-demand access to earned pay might seem like an obvious right. We’re not there yet, but the change is happening at pace.
The reality is that we live in a world where many people face increasing pressures on their personal cashflow, and often need quick access to earnings to meet financial obligations at the right time. According to 2020 research from EY, 48 percent of employees have financial pressures that make them rely on less-than-ideal sources of capital.
Mortgage, rent, utility and other scheduled payment dates are rarely aligned with an employee’s payday. When employees turn to credit card overdrafts, pawn shops and predatory lending institutes to bridge gaps, they’re taking on high-cost debt.
Given that 62 percent of employees have not built up an emergency fund, it is no surprise that 75 percent of individuals report major impacts on life and wellbeing because of financial shortfalls.
The ability of earned wage access to address employees’ desire for more flexibility and control over the timing of paydays, explains why it’s gaining traction in businesses around the world. EWA can be an attractive low-cost, high-value benefit to boost an employer brand and support employee wellbeing programs with financial tools and knowledge.
A word on the definition of EWA: The U.S. Consumer Financial Protection Bureau has issued an opinion that EWA does not represent credit; it is access to pay earned before the scheduled payday. Businesses will want to ensure their chosen solution provides genuine EWA rather than credit. There are some solutions that operate effectively as ‘digital money lenders.’
The Connected Economy: SaaS Infrasructure
Enabling multinational companies to connect all their global employee pay processes through one unified platform means they can offer fast, flexible payments to their workers. By standardizing with industry-leading SaaS infrastructure and automating payments via a well-designed API strategy, the payments process for salaries can be reduced to seconds. Virtually instantaneous payments to debit and credit cards and e-wallets can be made in hundreds of different currencies around the world.
The pandemic had a profound effect on consumer behavior, including accelerating uptake of EWA solutions.
- Researchers say that 90 percent of the U.K. population is no longer paying with cash.
- Forty-five percent of U.S. consumers have shifted to digital channels for purchases since the pandemic began.
- Logically, multinational organizations rely on SaaS and a proven global pay provider to support the multiple regulations and taxation behind pay legislation.
The ability to effectively choose your own payday is a powerful benefit that helps employers and employees alike.
Author Josep Elias, Chief Strategy Officer of CloudPay, oversees the company’s innovation labs. Focused on customer satisfaction and successful change management initiatives, he is an expert in global cloud-based solutions. Throughout his career, Elias has held senior product roles in the pay industry, placing a strong emphasis on the user experience.
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