Earned Wage Access Is Not A Loan

We'll lay down the facts as we know it.

Let's start by defining, characterising and classifying a loan based on what is freely available online and then compare that with what we know about Earned Wage Access.

What is a loan?

It's a commitment that a borrower will receive money from a lender, and will pay back the total borrowed, often with added interest, over a defined time period.

Types of loans - personal loans, business loans, automotive loans, student loans, mortgage loans, household loans, debt consolidation loans and payday loans.

Loan Characteristics.

How loans work

‍Typically for a loan to be provided to an individual, the individual would have a credit assessment done to determine their credit worthiness; they would need to provide financial information showing income; accept applicable interest rates for the loan; terms of repayment of loan are established including any penalty fees applicable should the loan not be paid within the stipulated time frame.

Loan classification

‍Unsecured Loans: no collateral required; usage for general purpose loans; e.g. payday loans, credit card.

Secured Loans: collateral required; usage for large purchases; e.g. car loans, mortgage.

Loan terms

Term of loans range from 1 month (payday loans) to 30 years (mortgage loans). There are three types of term loans which are further categorised as short-term loan, intermediate-term loan and long-term loan.

Interest rates

Depending on the terms of the loan a borrower could have any of the following interest rates applicable: fixed-rate, variable-rate or interest free. Sometimes a loan could start of at a particular rate for a qualifying period before switching onto another rate.

Late payment fees

These are common across all loans mentioned so far. It's a charge that lenders often impose on consumers when they fail to make an on-time payment on a debt. Sometimes these fees can accumulate over the length of time the loan remains outstanding.

What is Earned Wage Access (EWA)?

EWA is a company benefit that allows employees to access a portion of their earned unpaid wages before payday.

Types of EWA

Direct to Employer to Consumer (B2B2C): these models tend to integrate with the employers payroll system who in turn provides access to their employees. This is the Wagefit model.

Direct to consumer (B2C): these models link the EWA provider directly with the employees. We shall discuss more on this model in a future blog post.

EWA Characteristics.

How EWA works

Each day an employee works their earned unpaid wages are calculated. If the employee needs their wages before payday then they can access a portion of their unpaid earned wages up the point of request e.g. if the pay period is a 30 calendar month and today is the 16th then the employee can access a portion of the money they've earned up to the 16th. On payday when the employer runs payroll any earned wages already paid out are deducted by the employer from the employees pay packet and reimbursed to the EWA provider and the employee paid the rest.

Partnerships‍

The partnership, our relationship, is between the EWA provider and the employer and so we are heavily invested in a win-win success for all parties.

No credit assessment

Employees are not credit assessed; it's their earned unpaid money.

Safeguards on amounts that can be accessed

Employees can only access unpaid wages they have already earned within the pay period and cannot access money yet to be earned e.g. if it's a 30 day calendar month and today is the 18th you can access unpaid earned wages up to the 18th. You can't access unpaid wages on the 19th onwards since you haven't worked those days yet. To access unpaid wages on the 19th, 20th or 21st etc. then the employee will need to wait till they have worked those days too.

Reimbursement by the employer

Employer reimburses EWA provider for any wages accessed on payday through employee payroll deduction.

Affordable

There is a low one-off transaction fee, similar to an ATM or POS fee, incurred each time access to earned unpaid wages is made which the employer can opt to subsidise; also the employer could also subscribe to the product for fee free access for employees.

No interests rates

There are no interest rates whatsoever.

No late payment fees

There are no late penalty fees even if the employer deducted reimbursement happens after payday.

How does the loans described above compare to EWA.

EWA doesn't charge interest; no late payment fees; doesn't credit assess individuals; employees only ever access a portion of unpaid money they have earned (i.e. effectively their money); reimbursement is through the employer; it's affordable.

EWA is significantly different from a loan. In fact it's a much more ethical & responsible way to access your money when you need it. Contact us to learn more.