Payments 3.0: How Emergencies Spotlight the Need for Wage Access

The latest government shutdown shows why workers need options for accessing their money independently of employer-set pay periods.

From the start of the shutdown, many government employees were still working, but without the promise of a paycheck. Unfortunately, their bills did not stop when their paychecks did. They still needed to pay rent, mortgages, and utility bills, and buy groceries.

The affected group is huge. According to the Pew Research Center, the federal government in November employed about 3 million civilian workers (including the Postal Service) and 1.3 million active-duty military personnel.

The shutdown began Oct. 1, and by Oct. 10, USAA, the financial-services company focused on veterans, announced it had already made, within 48 hours, roughly 39,000 no-interest loans worth $144 million. But there were drawbacks. On Oct. 11, Task and Purpose, an online publication focused on the military and veterans, reported that many USAA members were surprised by credit checks and loan rejections.

What federal workers, including service members, need is liquidity, not a loan.

The shutdown provides a real-world example of why earned-wage access programs are necessary. These workers are earning money and incurring bills, but outside factors prevent their employers from paying them.

One of the eligibility requirements for the USAA program, and for a similar one offered by Navy Federal Credit Union, is having an established account with direct deposit, which is part of most EWA programs. Providing liquidity for wages already earned is different from providing a loan. EWA programs offer access to pay without a credit check and without recourse for the provider if the money is not repaid.

This can help people like USAA customers worried about their credit score being dinged by a credit check when income is accruing but access is frozen. The need for multiple EWA models is made evident by the options available to government workers.

Providers either work with employers or offer services directly to consumers. There are pros and cons to both models, but if an employer’s operations are disrupted by something like a shutdown, workers need choices to keep money coming in.

Banks and credit unions can help fill this gap because direct-deposit records offer a window into what a customer is making. In some instances, a bank may even have a commercial relationship with an employer and be able to verify employment or whether payroll has been delayed.

Chime, a fintech that offers mobile wallets, has a program called “MyPay” that uses direct- deposit information and allows users to access a portion of their pay based on their direct-deposit history. Both the USAA and Navy Federal programs require direct deposit, but they are not quite as forgiving as standard EWA products.

Now the question arises whether government shutdowns are a unique case. There are plenty of instances where people might see an interruption in their income flow even though they continue to earn money.

For example, businesses affected by natural disasters like hurricanes or wildfires might continue to “pay” employees even though their systems are down. As cyber attacks and ransomware continue to spread, it could be a man-made disaster that makes it hard for workers to collect their earnings. And of course, a plain old system crash could come between payday and money landing in a bank account.

Regulators should recognize that accessing earned wages outside of a standardized payroll schedule is a needed service but different from traditional loans. Financial institutions and providers should look for ways to offer this service to help customers and build loyalty by being there when they are most needed.

—Ben Jackson bjackson@ipa.org