In this episode of PeopleWork, we are joined by Shane Edrington from ZayZoon to discuss the emerging trend of payday advances and how employers can take advantage of new technology to offer this unique benefit to their employees. Watch the conversation or read the full transcript below.
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CJ: Hey everybody, it's CJ Maurer here at Complete Payroll and welcome to another episode of People Work, where we interview a variety of professionals throughout the human capital management industry on anything related to payroll, HR, labor law, anything related to managing a workforce and taking care of your people.
Today, I am joined by Shane Edrington from ZayZoon out in what looks to be a very sunny Scottsdale, Arizona day. Shane is here to talk to us about payday advances, how it's become an emerging trend in employee benefits. How it's different from a payday loan, which a lot of people think of when they hear payday advance. And how Shane's company can help employers offer a really unique benefit to help ease the financial burden for their employees in certain situations. So I'm really excited to get into all of this but first of all, Shane, welcome and thanks for joining us.
Shane: Thanks for having me. I appreciate it.
So Shane, let's get right to it because whenever we talk about payday advances, one of the first questions we ask is, well, isn't that shady? Isn't that illegal? And obviously they're thinking of a payday loan. So what is the difference between a payday advance and a payday loan?
Sure. They facilitate the same utility, right? So the payday loans came out of the pawn shop businesses, right? So you go to a pawnshop because you need a few hundred bucks and you might give them your golf clubs for 5 days or a week and they'll give you the money and as long as you come back with the repayment, you get your golf clubs back. And after a while, those pawn shop guys and gals really determined that why mess with the golf clubs when they could just take the money, charge a really high fee, and you write them a check and they just defer presenting that check to their bank for two weeks.
And so, from the point of a consumer or the borrower in that case, they're getting their money and they pay it back in a very short time duration. So really, the utility is the same when we talk about a payday advance because they're getting money from their employer or in this case from ZayZoon and they're paying it back through our relationship with the payroll company in a very short period of time. It could be a week, week and a half, two weeks depending on their pay cycle. The main difference are all those egregious business practices and fees.
So in the case of a payday loan store, you're paying anywhere from $15 to sometimes a high as $40 per $100 that you borrow. So you want to go get $500 to carry you through for a week and a half, it's going to cost you $75 to $150. And then they don't actually want to be repaid because they're in the business of getting dollars on the street. So they want to actually have you roll those loans over pretty much in perpetuity. So what you end up with is paying some random local pawn store or payday loan store $100 interest every two weeks just to carry your $500 advance.
So what we do is we partner with great partners like Complete Payroll to allow us the ability to offer payday advances in an environment that allows us to have a dramatically reduced fee structure. So $5 per transaction compared to that $100 to $150 they pay elsewhere.
Yeah, so actually our CEO Austin and I were talking about this just the other day. It was predicated on a conversation about how payday loans, which most well meaning people in our industry want absolutely no part of, the way you described it really kind of trapped people in a cycle of debt. Which is really counter productive to why they needed a loan in the first place. Maybe they had a medical bill or some other unexpected expense come up and they needed to access their funds before their payday. But with the really shady practices and the high interest loans as you've described, it's really hard for them to get out of that.
So whereas in payday advances, what you do from my understanding, correct me if I'm wrong, is you really just take advances of wages you have already accrued in terms of your payroll, your hours logged. And you just pay a small fee, not an interest rate but a small fee to advance that. Kind of like just going to an ATM, right? Where maybe it's an out of network ATM, you pay a small transaction fee to access the money that technically is already yours.
Exactly right. We really give that analogy a lot and we view ourselves as kind of an ATM to access earned but unpaid wages. It's an asset that belongs to the employee, it just doesn't get paid out obviously daily in most cases because that would be a giant pain in the butt for employers. It's just not going to happen. But there's no reason why employees shouldn't have access to that.
And to your point, you know, I guess I would build upon this and say I want to make it clear that employees don't want to go to payday loan stores. Nobody wants to go to that random shop that has bullet proof glass and they want to get a few hundred bucks. They need it for a very specific reason. They've gotta go through this whole rigamarole to get funds. They don't want to do that. They're not doing it to go on a vacation to Hawaii. They're doing it because their kid broke their arm and they have a deductible at the emergency room. Or they have a utility bill that's going to be shut off. Or they blew a tire and they have to get to work.
The major point is that they have to have those funds or else something bad happens. And so all you want to do is make sure they have a reasonable respectful and cheap, in this case, way to access that money without being put into a position to make their lives worse.
Yeah, so, about I would say nine-ish months ago, we were doing a little research and we actually published an article on our blog about Walmart offering payday advances to its employees and how payday advances is one of the new employee benefit trends in 2018 and going into 2019. Why do you think that payday advances is really kind of an emerging trend in the employee benefits sector?
Technology. I mean, that really is it. If you look at way back when, decades ago when folks would get paid on the dock, you know, cash in hand for the work they did that day. The only thing that prohibits that from happening now is really just that the payroll process again wasn't going to happen daily. So for the benefit of employers, it gets run 85% of the time biweekly. The rest of the time either semi-monthly or monthly. In a few cases, I guess, still weekly for some employers. But for the most part, it's not going to be run daily just because it's too much of a hassle. The technology isn't there.
Well now, with robust payroll platforms and payroll systems and APIs and third parties that go to kind of bolt on and make this hassle free, really responsibility and liability free for employers, you have these offerings that can occur pretty easily. And so now, there's no reason why it shouldn't be live with all these payroll platforms and companies like Complete Payroll. So you're seeing it really take off in a lot of different employers benefit offerings.
Yeah, and in the spirit of full disclosure as you just kind of alluded to, we've recently informed a lot of our clients that Complete Payroll has partnered with ZayZoon to offer this payday advance solution to their employees. So why don't we use this opportunity to kind of shift gears. We've kind of talked about payday advances in general, how they differ from payday loans. Why they've become kind of an emerging trend in the HR industry recently. Why don't you explain to us how this ZayZoon services work for employers that might be interested.
Sure. From the employers perspective, and I'm not trying to minimize this just for a sales benefit, but really it is extremely simple. I mean, employers don't have to do a thing. We exist in a fully automated basis with our payroll partners, with Complete Payroll. And so if the employer wishes to have this live for their employees, all they really have to do is just request that it be turned on.
From there, if they love the program and they want to push it and make sure their employees really know about it, then of course we love that and we'll provide materials, break room posters, handouts, anything we can do to make sure the employees understand crystal clear how the program works and what it is. So that's the comment around employers. We really make life very easy. No agreement to sign, no liability, no nothing.
When it comes to employees, they will access us through a link that they get either via email or from another marketing piece that they receive. They come into our system, they are asked to create a profile. It's very quick. The information they enter allows us to verify that they're under Complete's umbrella, one of the clients under Complete's umbrella. And with that information, they can then create that profile and they can instantly request an advance.
So the system knows how much they've earned up to that given point in time. In some cases or a lot of cases, it is an assumptive number, right? We know what they tend to make per day, so we give them access to a portion of those earned wages. If they would like to request an advance, all they do is say how much, up to $200. There's a $5 transaction fee, and we actually fund that advance directly from us to them into any bank account that they choose.
And we actually ride the debit car rails, so the line turns a debit card information into our system via kind of creating a wallet, like is very common with many virtual financial products these days. We'll create a wallet and we can fund through that debit card information instantly. So it could be 9 pm on Christmas Eve and they're going to have their money in their accounts in a matter of seconds. Our customer service staff that's available via chat on our website is actually trained ... Once somebody actually goes through that process, quite often they'll say, okay, "When is the money going to be in my accounts?" And our staff is trained to say, "Just check your account." Because quite often it's just there instantly.
Once that's done, they have their funds. The employer has done nothing in that scenario. We will then make sure that a deduction or a direct deposit split is imported into the payroll system so that we get repaid on the next payday. So if they took $200 and there's a $5 fee, $205 will get repaid to us automatically, nothing on the part manually from the employer or anything like that. We get repaid automatically on the next payday. And that's it. They're free to request another advance if they chose. No ongoing fees, no maintenance fees, no interest. No nothing like that.
So you kind of alluded to $200. Is there a cap of how much an employee can take an advance from their accrued wages at any given point in time?
So they can take what amount they have available to them, right? So if they've earned, say they've earned $1000 and let's just say for this particular employer we allow 50% of earned wages to be accessed. That kind of gets to be a little bit of a risk assessment based upon their profile. Are they seasonal, are they full time, have they been there for two weeks or six months, et cetera. So it's somewhere between the 50 and 75% mark. But let's just say they have $500 that they can access. They could choose to take out the $500 if they wanted to, but it's very much like that ATM analogy. So we allow up to $200 per transaction. There's a $5 fee for that transaction.
So again, imagine you're at a concert and you want to go to the ATM to get cash because that's all that the venue will accept. So you go to the ATM. Well, you're going to smart about ... I don't want to just pull out $20 and pay $3 fee or $5 fee and then come back five minutes later and pay another fee. You're going to take out what you think you need and be smart about what you do with that withdrawal. So we see the same thing. We see employees taking out maybe on average $160 or in that range. They're not taking out the full boat every time. They're taking out what they require, paying their $5 transaction fee, and then they might not use us again for weeks down the road.
Now forgive me if I missed this. You said that it takes virtually nothing on behalf of the employer to provide this to their employees. They just need to request that it be turned on and then, if they want to inform their employees, you guys can step in and get them materials of all sorts to let them know that this benefit is available to them. So doesn't take much if any of their time. What about cost? Is this ... I mean, I understand this doesn't cost anything to employers. Explain that.
No cost to employers. No liability. So we always get the question, you know, what happens if an employee owes money and they get terminated? Right? Or if our system is wrong, we assume they've money, and they haven't made that much and we over allowed them access to their funds. In all those circumstances, our relationship is between us and the employee. So if for whatever reason the employee, if we don't get repaid through payroll, then we'll contact the employee and say, "Hey, it looks like we didn't get repaid through your payroll. Let's just figure out another option to repay that advance." But in no way is there any liability put on the employer to handle that process.
Okay. So from what I understand, it's no cost to the employer. It only requires the request that it be turned on, to be accessed to the employee. Then all of a sudden, any of their employees can request advances and just take advances by creating a profile in your system. They can advance up to $200 at a time for a fee of $5 for every $200 advanced. Is that correct? Am I missing anything?
That's correct. Yep.
What else is important for people to know about this?
You know, I would say that from the employer perspective ... Because again, as you outlined that, again no cost, no liability, nothing they have to do. All those things make it seem very easy. So I think, in my conversation with employers, I think often times it needs to be made clear that employees actually really need and value this service more so than employers might think. I think sometimes there's an assumption that maybe only a few, 5% let's say of employees that actually use payroll advances. But it's actually a very large population of employees. 75% of American's live paycheck to paycheck. It's a very depressing stat but it is what it is.
And so anybody in that realm that encounters a situation where they are waiting for their next paycheck and their electricity is going to be shut off, or they have that tire ... Whatever it is, whatever the emergency expense is, they are going to get funds from somewhere. So if you don't have a program like this in place, you're either going to have to give it to them or choose whether or not to give it to them yourself as the employer. Which that has liability there, right? Do you say yes to some people, no to others? Do you want to be a collector? Those kinds of issues.
Or you're telling them, "Hey, we're not going to do a thing." And kind of good luck to you with those payday loan stores or the pawn shops or maybe you just send a check to just kind of appease them but then you bounce and you pay overdraft fees. Overdraft fees are even more egregious in many cases than payday loan shops are. So it just makes a lot of sense just to give employees a good choice, right?
Yeah, well, I think that's very clear and I can definitely understand the benefit, obviously speaking as a member of Complete Payroll. We decided to partner with you guys and offer this solution to our clients and their employees for a reason. I think that's very clear and I really appreciate you explaining all of this, Shane. What we're going to do is we're also going to drop a link to our product page that explains our payday advance solution. And also drop a link to some of your contact information in case any employers seeing this and maybe has a question for you. But aside from that, Shane, any parting words? Any words of wisdom for whether it be us, our clients, any other employers or payroll partners out there that may be watching and may be considering a payday advance solution?
No, I would just say, you know, obviously I think taking advantage of a lot of the technology that's in place now that really can make benefit platforms and payroll platforms, HR platforms, extremely robust in offering employees a great deal of benefit without any cost. I mean, look at not just payroll advances, although that's my world obviously, but look at all these programs and things that you can do. And don't just assume that there's going to be complexities or costs or liabilities or those kinds of things. Really look at them, because there's a lot of great things out now that are available to employers. And I would just approach 2019 with an open mind as to what you can really offer employees.
I think that's a great word of advice for anybody in any industry. Approach 2019 with an open mind. So on that, we'll close. Shane, thank you so much for joining us. I think this was super valuable and hope to talk to you soon.
Definitely. Thank you very much.