Instant wage access services should be provided for free
The instant wage access (EWA) industry has evolved over a decade from a disruptive innovation to a field facing cost and compliance controversies. Author Jason Lee points out that many workers incur high fees due to frequent use of EWA, and regulatory lawsuits are frequent. He argues that the industry should provide free, compliant services through technological innovation rather than lobbying for legislation, and cites warnings from regulators in California and New York, emphasizing that free EWA is the way forward.
Editor's note:Jason Lee is the head of enterprise business at digital bank Chime and the founder of fintech companies DailyPay and Salt Labs.
A decade ago, earned wage access (EWA) startups boldly challenged a century-old payroll system. By converting raw, unaudited HRIS data into digital wage balances, EWA enabled workers to view and access their pay in real time.
This model quickly became a standalone human capital management category, adopted by thousands of companies and serving millions of workers. I was honored to co-found and lead one of the earliest EWA companies until 2022.
However, many employers remain hesitant for two reasons: cost and compliance. On cost, many workers have become long-term EWA users, accumulating hundreds of dollars in fees annually; on compliance, EWA involves financial, labor, and tax regulations. A typical example is the lawsuit filed by the New York Attorney General against two EWA providers, alleging violations of usury and other state laws.
Facing these challenges, the industry has two possible paths: adjust its model to comply with rules, or change the rules to fit its model. Currently, the industry has chosen the latter through legislative lobbying, petitions, and PR campaigns.
These efforts have led to EWA-related laws in 11 states, exempting providers from certain rules on lending, money transmission, wage assignment, and wage deduction. But these states account for only 15% of the U.S. population. What should employers in the remaining 85% of states do?
If EWA companies could uphold the innovative spirit that founded the industry, we could achieve free and universal wage access. I have seen early signs of this approach among a few providers internationally. Domestically, I hope to 'be the change you wish to see' and lead EWA into a new era.
I agree with Brian Tate, CEO of the Innovative Payments Association: 'Americans living paycheck to paycheck deserve better,' especially as EWA faces regulatory threats. But the industry's response should be to change its software code, not its regulations.
This industry can no longer continue charging employees fees to access their wages. We cannot expect employers to deduct these fees via payroll, nor can we expect financial and labor regulators in 50 states to uniformly approve such practices. California has noted annualized rates exceeding 330%, and the New York Attorney General warned that 'reliance on the cycle could cause severe financial disruption to employees' personal finances.'
Undoubtedly, workers should be able to access their wages—that is beyond question. But this is fundamentally different from 'paying to access wages.' EWA at its best is a first step toward financial progress. When pay frequency is more regular, hourly workers are better able to plan long-term finances and are more inclined to save—provided they are not penalized for accessing their own money.
It all comes down to this: the optimal EWA model is one that serves the most people at the lowest cost. Today's technological advances make it possible to offer fully compliant and completely free services, guiding users gradually to become savers. When EWA was born, bank overdraft fees were $35; now some financial institutions offer such services for free. It's time for EWA to enter its next stage of evolution.