Fintech company Revolut have launched a product that gives employees access to their wages ahead of their payday, seeking to offer an alternative to borrowing payday loans.
The company are in discussions with a number of businesses to sign them up for the product, called Payday, which will allow employees to take up to half of their salary accrued ahead of time.
Revolut’s Payday, What’s It All About?
Users will have to pay a flat fee of £1.50 for each transaction, this being cheaper than many of the other credit forms consumers have been known to take out when needing access to cash before their payday.
CEO and co-founder of Revolut Nik Storonsky 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. 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.”
The service will be offered free for employers, Revolut assuring that the perk won’t require businesses to overhaul their payroll systems either. When signing up to Payday, employers will have to provide Revolut access to their payroll system, as this enables the fintech to find out how much it can offer each employee based off how much they earn.
The £24bn company have goals to become a “superapp” for any financial product users want or need, having applied in January for a full U.K. banking licence, and hoping to encourage its millions of users to make their primary current account with Revolut.
The FCA Caution Against Salary Advance Schemes
While the new Payday product is intended to help employees access their wages early and avoid more expensive means of borrowing, salary advance schemes in general are known to be controversial. Although these schemes are advertised as a way to help users to manage unexpected expenses, the FCA have warned that these cheaper alternatives to forms of borrowing like payday loans and credit cards can also end up in a cycle of debt.
The FCA cautioned last year in a statement that “If an employee takes their salary early, it is more likely they will run short towards the end of the next payday, potentially leading to a cycle of repeat advances and escalating fees,”
John Gauthier of Hoopla Loans commented:
“Revolut’s diversification into the employee benefit and salary finance space has demonstrated the growth in this area – and the responsibility that firms have to safeguard their employee’s health and financial wellbeing.”
“The innovation of salary finance is relatively new and can certainly help those who have immediate cash requirements. However, one has to check that their employees do not become over-reliant on such incentives, otherwise they could always find themselves borrowing money ahead of time and living pay cheque to pay cheque.”