FinTech disruption in the payments market has come full circle; from early innovations in ways to pay, some players are now revolutionising how people get paid.
The payments sector has been at the forefront of the FinTech revolution over the past decade reconfiguring supply, demand and purchasing patterns between vendors and consumers across the globe.
Adding efficiency to the way we pay for things was a big part of the first wave of the FinTech revolution and building flexibility into this system featured prominently in the second wave. The next frontier, arguably, could focus on building flexibility into the way we earn which, in turn, adds flexibility to the way we pay.
Disruption of payments is moving right across the value chain, and on-demand pay could become part of a reshaping of workforce access to earned income. It works by enabling employees to access a portion of accrued wages in advance of pay day. Unlike salary-based lending or payday loans, on-demand pay does not involve borrowing on the part of the employee. This category of solutions offers individuals the ability to consume, spend and invest as they earn.
Over the past 30 years, global employment levels have risen 65 per cent, reaching 3.3bn employed individuals worldwide (pre- COIVD-19 crisis).1 Yet, despite the economic benefits of exponential growth in employment, large swathes of the global workforce continue to find themselves in a precarious financial position.
Increasing part-time employment, diminishing real wage growth, stagnating savings rates and a widespread increase in household debt have all contributed to a gradual erosion of financial security and flexibility for some in society. Growing debt-to-income ratios, for example, mean that even minor fluctuations in household income can sometimes result in financial strain.
New analysis by EY2 reveals that almost three-quarters (73%) of UK workers find it challenging to meet everyday expenses or worry about not being able to meet them; half of these have faced a financial shortfall between pay periods in the last twelve months.
The research, which was carried out at the start of the pandemic, also found that over half (58%) of those surveyed who have experienced financial difficulties have reported a material deterioration in their health and wellbeing. In the UK there are a reported 8.3 million adults who find meeting monthly bills a “heavy burden” and miss more than two bill payments within a six-month period.3
Even though the approach to pay and benefits by many companies has largely remained unchanged, consumers appear ready for a more flexible way of being paid.
The research shows that 27% of the people surveyed would welcome more flexibility in the way they are paid through the use of on-demand pay if it were offered by their employer.
This level of additional flexibility could be useful in helping some individuals deal with causes of financial stress, such as emergencies, no savings, and timing of income.
With emergencies being unforeseeable and savings being a function of income (which has stagnated in real terms), better alignment of earnings and expenses could be a route towards greater financial control. In the context of the current economic environment, and ever-evolving patterns of work and earning, the demand for greater flexibility is likely to continue across all areas of daily life, including pay and benefits. Innovations such as on-demand pay could give employers the ability to adapt their remuneration programmes to a world where flexible work – and flexible pay – may soon be the norm.
1 Cited in EY’s flexible pay report, 2020
2 The survey is part of a market study and was conducted in the UK in April 2020 among c 2,000 nationally representative working-age individuals from across the income, wealth and socio-demographic spectrum.
3 Money Advice Service — Are you one of the 8.3 million adults with problem debt? 2017