Banking app Revolut is giving consumers the ability to advance up to half their salary at any time of the month, using a new feature.
Its new wage access product, Payday, will initially be available to UK businesses and their employees, with it coming to Europe and the US to follow in the coming months.
The UK fintech firm, which has over 16million customers worldwide, believes it will remove the financial stress many workers face between monthly paydays.
Revolut which now has around 3.5 million UK customers and over 16 million worldwide, has officially become the UK’s most valuable fintech firm with a whopping £24billion price tag
It says it will also make them less reliant on high-cost credit products such as payday loans.
Nik Storonsky, founder and chief executive at Revolut, said: ‘We believe in the importance of making financial wellbeing accessible to all, and this includes focusing on the impact of financial stability on employees’ mental health.
‘After the difficulties of the past year, the last thing employees need now is financial uncertainty and stress.’
He adds: ‘It is important to move away from a situation where many are dependent on payday loans and expensive short-term credit, a reliance that is exacerbated by the monthly pay cycle.’
However, others have expressed concerns about the app enabling some people to get into bad habits.
Andrew Hagger, founder and director of personal finance website, MoneyComms said: ‘I can see that this would be a help to employees who suddenly have an unexpected expense to cover.
‘But it’s not really something people should be doing every month otherwise it could mean they may have a deeper problem with expenditure outstripping their income.
‘In a way it’s just a different form of overdraft.’
Nik Storonsky, founder and chief executive at Revolut believes its new product will help to remedy peoples’ reliance on payday loans
How will Payday work?
Revolut’s platform and app will plug into an employer’s payroll system, allowing employees to view their available accrued earnings and select the amount they want to withdraw directly into their main account earlier in the month.
Employees will need to be a Revolut retail customer and choose to have their salary paid into their Revolut account to be able to use the Payday product.
Payday will also only be available to customers whose employers have signed up to the service with Revolut.
The fintech firm will charge a flat fee of £1.50 each time a customer opts to access their salary early.
It will also allow customers to withdraw a maximum of 50 per cent of their accrued wages at any point, although this limit is at the discretion of the employer and can be monitored or reduced by each company.
Are there other products like Payday?
This is not the first salary advance scheme to be introduced.
There are other apps that offer employees access to a proportion of already-earned pay with many not allowing customers to take more than 50 per cent of their wage.
Hastee, which launched in August 2017 claimed to be the first Earnings on Demand platform to launch in the UK.
The app is being used by over 300,000 employees from multiple organisations across Europe including NHS South London and Maudsley, Mitchells & Butlers and London City Airport.
It offers customers up to 50 per cent of their salary in advance and workers receive their first withdrawal, up to £100, free of fees.
Thereafter, it charges a 2.5 per cent transaction fee – but it never charges any interest.
In most cases, the fee is paid by the employee when they withdraw their earnings, but employers have the option to cover this cost for their staff.
Another established early payday provider is Wagestream, which launched in the UK three years ago.
So far, more than 200 employers offer Wagestream’s service to their employees across industries like hospitality, retail, security and healthcare.
Like Hastee, it allows employees to access up to 50 per cent of their earned wages, before the end of the pay cycle.
If employers opt to pass on the cost of processing the transaction, employees typically have to pay £1.75 each time they access their earned wages.
Worries it could lead to overspending
Whilst Revolut claims to offer a lower-cost alternative to credit cards and payday loans for customers that might otherwise rely on to help with their cash flow problems, some commentators view the new product as dangerous.
They worry it could lead to bad money management and increase overspending among people that may already be in a financially vulnerable position.
The debt charity, Step Change, has warned that whilst wage advance schemes have the potential to be of some benefit to those who might otherwise turn to high cost credit, these products also carry some risks depending on how they are used – for example if users fall into a cycle of repeat use.
Peter Tutton, head of policy at Step Change said: ‘While wage schemes have their place in potentially helping people to avoid more problematic forms of borrowing, we’d like to see the FCA build on the evidence gathered on these schemes, by ensuring the wage advance sector develops the strong and effective best practice code the review recommended.
‘HM Treasury should stand ready to bring wage advance lending under FCA regulation given any signs of growing consumer harm.’
Payday’s detractors say it could lead to more debt for those already struggling financially
Revolut, claims it already has measures in place to alert those that are misusing the product.
A spokesperson for Revolut said: ‘We have designed responsible usage alerts which ensure that there is no overuse of the products.’
‘Additionally, we will monitor indications that users may be in financial difficulty.
‘Where it appears a customer is potentially at risk of financial difficulty, Revolut will provide customers with warning messages around the use of the product, and where appropriate, provide [them] with the contact details of debt charities such as Citizens Advice Bureau and Stepchange.
‘In certain cases, we are also able to gradually lower the limit of accrued salary that an employee can access.’
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