Apps Will Get You Paid Early, for a Price

“Maybe the user’s income hasn’t been affected by Covid but someone else in their household has had their hours reduced or has been laid off, resulting in less overall income,” said Leslie Parrish, a senior analyst with Aite.

In recent months, hundreds of companies — including Kroger, Wayfair, Dollar Tree, Staffmark, HCA Healthcare and Mercy Hospitals — have begun offering the apps to employees.

“I cannot change the level of salary, but what I can change is the timing,” said Safwan Shah, founder and chief executive of PayActiv, which added 410 employers as clients from March to August — more than double the additions a year earlier.

Big-money investors have been eager to cash in on the growth of an industry that caters largely to the financially vulnerable. Alternative lenders — a class of businesses that also include point-of-sale and small-business lenders — drew $2.5 billion in equity funding during the first half of 2020, according to CB Insights.

“This is venture capital money that is expected to be paid back royally,” said Lauren Saunders, associate director of the National Consumer Law Center. Although cheaper than payday lenders, cash-advance apps can be costly if used frequently, she said: A $100 advance taken out five days before payday with a $5 fee is equivalent to an annual percentage rate of 365 percent.

Some services have installed safeguards, including limits on the amount that can be advanced and ceilings on fees. Others let employers set the rules for their workers.

DailyPay will immediately transfer up to 100 percent of earned but unpaid income for a $2.99 fee, or $1.99 for next-day delivery. Its founder and chief executive, Jason Lee, said most users wanted to cover a specific need.

Article source: https://www.nytimes.com/2020/10/02/your-money/cash-advance-apps-paychecks.html