Imagine you have an electric bill due Wednesday, but you don’t get paid until Friday. Then you got a flat tire. You need to fix the car to make it to work for the rest of the week, and you also still need to buy groceries. That bill payment will have to wait, which means you could end up with a penalty, a ding against your credit score, or even with your lights shut off.
You could get a payday loan—a cash advance that comes with a high interest rate and fees—but what if you could simply access the money you’ve earned, outside of that two-week-pay-period dynamic?
That’s the hope of Immediate, a financial health startup meant to benefit hourly wage workers. Immediate partners with a company to work alongside their payroll systems. The ImmediatePay software platform integrates with a company’s time-tracking system to validate how much an employee has earned in a week, and then gives the worker access to that earned money before their next paycheck. Immediate will fund their account with the desired amount, and then a corresponding deduction will be taken out of the employee’s next paycheck.
Millions of Americans live paycheck to paycheck, and Immediate cofounder Matt Pierce says these workers, when faced with an immediate need for money, often turn to one of three options: credit cards, racking up debt; bad checks; or payday loans. “We’re really trying to step in and give people a responsible way to access their earned money prior to the next payday,” he says.
Immediate does charge an early access fee, so it’s not a completely free way to get your money early. Pierce likens the Immediate fee to an ATM fee and says it’s never more than $3, and after a certain amount of usage, employees can get free transactions. In comparison, the average payday loan borrower spends an average of $520 in fees to repeatedly borrow $375, according to Pew Charitable Trusts. Twelve million Americans take out payday loans each year, to help cover regular expenses like rent and utilities, and they spend $9 billion on loan fees. Other apps to access earned wages do exist, but often have monthly membership fees, are actually loans with interest, or aren’t integrated with a company’s payroll, so the employer has to upload their timesheet themselves.
Why aren’t payroll companies making wages available ahead of payday themselves? It’s often not feasible, Pierce says. Many payroll companies are so big that if they were to offer early wages, they could be on the hook to float millions of dollars before they themselves receive those funds. Also, payroll companies make their profit in part by earning interest on the money they pay out, so they’re less incentivized to pay out that money early.
After first launching last summer, Immediate has integrated with a dozen different payroll and time-tracking systems, and now has 10,000 users. Pierce says the startup is in talks with companies that range from 95 employees to 75,000, and that they’re getting companies on board by explaining how this benefits their workers. “It’s really a recruitment and retention tool,” he says, noting that some companies may be losing shift workers to jobs at restaurants or coffee shops, where they can walk away with some cash every day. “Giving someone the ability to access their pay when they need it is definitely a leg up.”
Some HR teams have been hesitant at first to give this option to their employees, Pierce says, voicing concerns that their workers will overuse Immediate and mismanage their money. That’s not what Immediate has seen so far. On average, an Immediate user makes 1.3 transactions in a pay period, taking out a total of $106. “We’ll see these interesting scenarios where somebody pull out $114, kind of a weird number, and we send out an email for feedback,” says Pierce. “The reason they did it was they were doing that to fill in a gap to pay a bill that was due.”
The Immediate platform also lets an employer set certain restrictions to how it’s employees can use the service, like capping the amount someone can pull out or how often they can make withdrawals. Pierce says if an employer wants to let their workers get paid every day, they’ll allow it, but they leave that up to a company that knows its workers well, and they want to make sure users are still responsible with their income. (A simpler solution for companies would be to pay their workers enough that one unexpected expense didn’t result in potential financial ruin.) Inside the Immediate Pay app, employees can see financial literacy articles, budgeting tips, and financial calculators. “People are using this for the right reasons,” Pierce says. “They’re using this to smooth out those income peaks and valleys that come with a traditional biweekly pay period.”