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The early wage access trend in banking: Decoding myths

Early access from JP Morgan is included with Secure Banking, which costs USD 4.95 per month

Financial services pundits and other stakeholders are getting busy releasing 2023 market outlooks and trends to watch out for. The banking industry needs to watch out for the challenges put forward by fintech.

Fintechs provide more efficient services, apart from having better user interfaces, thus disrupting the conventional banking playbooks. Toptal, a network of on-demand talent from around the world, says that customers expect more from their financial services after the Financial Crisis of 2008. Technology has enabled consumers to investigate their service providers and startups are using it to deliver better, more efficient services.

Hence, banks are now looking to use fintech’s advantages. One of these methods will involve a scaled-back form of early access to paychecks.

Capital One has advertised that clients may get their salary two days early in several high-profile TV spots. JP Morgan has also provided similar services. Early salary access has become crucial in the fintech rivalry toolbox. Banks need to include the entire essence of the function in advertising early wage access. Two days could be excellent for specific clients, but early access should be something other than the feature’s primary goal. On-demand pay, often known as earned wage access, is required. Let’s debunk some misconceptions regarding on-demand income and the realistic and constructive approach to early wage access in banking.

Misconception 1: A consumer’s ability to pay bills two days before payday may make or break their situation.

Reality: Having access to your money two days early might be helpful if the timing is ideal within that limited time frame. In contrast, customers use on-demand pay to cover expenses that might otherwise be overdue or urgent or unforeseen expenditures at any point in the pay cycle. What happens if a household member has unpaid medical bills? Or has a health plan with a high deductible. Here, two days had no effect. On the other hand, on-demand compensation has a natural impact on the health and happiness of a family and its members.

Misconception 2: Access to said early wages is free.

Reality: Indeed, it is only in a few instances. The checking account package includes it. Early access from JP Morgan is included with Secure Banking, which costs USD 4.95 per month. Also, the box eliminates overdraft fees, which banks have been attempting to defend for a while. Although the Capital One version has lower costs, it only allows USD 225 in withdrawals on the first day. Here, banks have discovered a fantastic tool for retaining and valuing customers. Running a large bank like Capital One means that every consumer interaction has an impact.

To improve the value of high-net-worth people (HNWIs), for instance, you may launch a platinum credit card with no spending restrictions. You may send money abroad without paying anything. You’ll develop something like ‘Secure Payment’ if you’re trying to draw in and keep lower-income customers or people who live on monthly paychecks. Again, imposing restrictions or charging a price for early wage access is pointless. Banks must acknowledge the struggles of the USD 50,000–80,000 wage group and create a line of products that enables them to be ready for the unanticipated if they want to be genuinely relevant and increase customer value.

Misconception 3: Banks are sacrificing their interests to give customers early wage access.

Reality: They aren’t. In actuality, it isn’t even a creative application of payment technology. Every direct deposit payment has an official date. Thus, it is the day the firm plans to pay employees. An employer will typically submit a payroll file containing direct payments to the employer’s bank one or two days before payday. Banks, therefore, possess the funds. They will receive a little less money in interest on the deposit. But, even though their messaging makes it seem like they are putting out for the consumer, it’s a simple grab.

As a result, banks have learned how to increase the value of lower-income accounts and use a potent marketing weapon, thanks to their fintech peers. When it comes to on-demand pay, however, this two-day early access strategy will only provide customers with the alternatives or security that genuine on-demand pay can provide.

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