What Are Instant Pay Apps?
What Are Instant Pay Apps?

What Are Instant Pay Apps?

Millions of Americans are currently living paycheck to paycheck.  This has been proven to be problematic because it means that few have access to an emergency fund.  Having little to no access to additional funding has caused individuals to look for alternate solutions.  Instant pay apps have proven to be a more preferable solution in times of an emergency as opposed to pay day loans or title loans. 

How It Works

Typically, many workers are paid bi-weekly.  We all know that a lot can happen during a two-week timeframe while waiting for a paycheck.  Let’s face it, life happens.  There could be a medical emergency, vehicle repairs, or even funds needed for keeping the utilities on.  Most of us have been there.  It proves challenging to overcome these obstacles if the money isn’t coming fast enough.

Instant pay apps allow users to access funds that they have already worked.  This is perfect for those who do not wish to be subject to paying off loans with high interest or potentially having to use personal possessions as collateral.  Instant pay apps are simple because users are only taking funds from themselves instead of another institution. 

Think of it as having similarities to a cash advance.  Typically, an employee will work a shift, and funds are available within at least 24 hours.  After that, users have the option to access that money if needed or wait until their 2-week payday.  Some employers call this ‘earned wage access.’ 

Pay and Retention

More employers have begun to implement partnering with instant pay app companies in the attempt to provide their employees with more alternatives when it comes to getting paid.  An article written June 1, 2021, by USA Today outlines the importance of on-demand pay and how it directly correlates with retention. 

It is true that across America many employees have quit their jobs because they preferred employers who provided the option to access their pay before the typical timeframe.  Incorporating instant pay apps reduces employee turnover rates.  This saves companies money since they do not have to invest in as many brand-new employees.

Here are just a few instant pay apps that employees find especially useful:

Possible Pitfalls

Although there are many advantages to instant pay apps, there are also pitfalls to consider.  Here are the top 3 disadvantages:

#1 Fees

The first disadvantage is the possibility of additional fees being involved.  With many instant pay apps there are additional transaction fees that may be tacked on to each withdrawal. If users are not careful and are careless, they can easily gloss over the disclaimer that details the fee amounts attached to each use of the app, and in some cases, possible membership fees just for using the app.  For example, a DailyPay transaction could have an additional processing fee of $1.99 or more depending on how fast you need funds.  This means that multiple transactions can add up and end up costing you more than what was intended.

#2 Transaction Limits

Secondly, using instant pay apps can involve a possible limit on transactions.  When I speak of limits, I am doing so on two levels. I am referring to limits on the number of overall transactions you are allowed to have and limits on the overall amounts of those transactions.  Some great examples involve Earnin and FlexWage.  Earnin has a limit of up to $100 per day while FlexWage allows the employer to dictate setting limits for transactions.  If you need more money or transactions than what is allowed, then you may be out of luck.

#3 Impulsive Spending

Lastly, I will discuss what is probably the most important pitfall to consider.  Prior to signing up with any instant pay app it is strongly advised that you ask yourself an important question.  Are you impulsive when it comes to spending?  If so, then you may want to reconsider providing yourself with the ability to access your funds early and at any time. 

In fact, there are very real instances where individuals have placed themselves in a more precarious financial position because of impulsive spending.  Outside of emergency situations, funds are often spent on eating out and making other careless spending pertaining to clothes, shoes, going out, and more.  It can be difficult, but sometimes you just have to flat out tell yourself it isn’t worth it. 

It is not uncommon for employees to have spent most of their wages prior to pay day.  The sad part is, when that bi-weekly payday does happen, some are left with next to nothing for a paycheck.  In these instances, the shortage of funds is not the fault of the employer but that of the individual. 

Alternatives

Overall, instant pay apps are great to have for emergency situations but can turn into a disadvantage if used incorrectly.  Here are things you can do to prevent having to relying on instant pay apps regularly so that you can build an emergency fund:

  • Budget better and track your current spending – If you know where you can cut spending you can save money.
  • Save some of your cash every month, if possible – Place some of your cash in a savings account so you don’t spend it, even if it’s a few dollars.
  • Start a side hustle/gig – Make money off what you are skilled in or what you are passionate about. (To grab the list of side hustle ideas click here)

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