Employers are shying away from real-time payments as a means to support earned wage access, according to an executive from payroll services company ADP who spoke at a payments industry conference this week.
Instead, employers prefer working with existing financial institution partners to transfer such funds, ADP Vice President Refugio Lopez said while speaking on a panel at the Nacha Smarter Faster Payments conference in Miami this week.
That’s because employers don’t want to deal with trying to get authorizations on a recurring basis to send payments through The Clearing House’s RTP network, or even the more standard ACH system, Lopez said. “There's too much friction involved in the (request for funds) process,” he explained during the panel discussion on Monday.
Earned wage access, also known as on-demand pay, is a growing U.S. trend in which employees are able to access wages they’ve earned when they choose, as opposed to waiting for a regularly scheduled payday. A throng of EWA providers have sprung up over the past decade to offer the services via a variety of business models, sometimes through employers and sometimes directly to the employee.
Getting more immediate access to wages has become popular partly due to the gig economy, where workers who often work as contractors, as opposed to employees, get paid more quickly.
Still, for many EWA services, employers player a role. It’s easier for employers to process EWA payments on rails within their financial ecosystem, Lopez said during the panel discussion. Employers want to change their typical procedures as little as possible and avoid additional expense in providing these services, according to Lopez, who is head of U.S. money movement for ADP.
“What we're finding is that in working with our larger banking partners, we're trying to take advantage of the mutual relationships that we have,” Lopez said. “In other words, how can we do transfers of funds without it ever having to leave the walls of that banking institution.”
That’s contrary to the experience of one major earned wage access player, DailyPay. At the Nacha conference last year, Rob Nardelli, DailyPay’s director for commercial banking and business development, highlighted his company as a big user of The Clearing House’s RTP network for earned wage access payments.
DailyPay offers its services through the employer, and then the employee end-user has the option to pick a real-time payment, among other options.
“Our benefit is the freedom of choice,” Nardelli said in a Tuesday interview. “It’s not the employer’s decision, nor should it be.”
Real-time payments can also now move through the Federal Reserve’s new FedNow instant payments system, which was launched last year. DailyPay is also considering passing payments on that rail, but isn’t doing that “yet,” Nardelli said.
Other speakers on the Monday panel included some of ADP’s partners, including JPMorgan Chase, Visa and another earned wage access provider, Immediate. With EWA services, the payments are also sometimes made to employees via debit cards.
“I think what the market is really asking for on the request for payment is that recurring feature so that, similar to an ACH debit, you set it up and you just know that my monies are pulled from your account regularly,” Lopez said.
It’s not clear when other payment channels may evolve to reduce that friction, he said, though he noted that Nacha is working on rule changes that could speed the evolution along.
