by Professor Dennis Shaughnessy
For many years I’ve taught microfinance and financial inclusion services as part of our social enterprise program. We’ve always admired the work of Grameen Bank to make credit accessible and affordable for poor women without collateral. More recently, the use of cell phone services to transfer money at low cost like MPesa in Kenya has advanced the interests of the millions of lower income and un-banked people in the developing world.
On the other hand, we’ve long been critical of the excesses of the pay-day loan industry in the US. These businesses essentially “front” a workers paycheck, for interest rates that often exceed 100% APR. While there are some payday lenders that appear to offer a more reasonable service, most exploit low income workers.
And now along comes DailyPay, Inc. and its “DailyPay” service. This New York-based “fintech” business allows workers to access their earned pay each day, with a small transfer fee that begins at $1.25. It’s all done with an easy-to- use cell phone system. Employers sign-up for free, and other than the transfer fee the service is also free to employees. DailyPay is a simple add-on to an employer’s existing payroll service.
For workers in low wage jobs, this service can be the difference between say making rent or not, while avoiding outrageously high interest rates on accessing their own money. Restaurant and hotel workers, in-home care givers, home cleaners (maids) and even Uber drivers all can benefit from fast low-cost access to their earned wages each day. DailyPay is a for profit business that has raised $6 million in venture capital financing, and appears to be in a rapid growth phase.
To date, employers who sign-up for DailyPay see a 40% reduction in employee turnover, with nearly three out of every four employees indicating they are more motivated to come to work when they are paid daily. DailyPay employers also have seen a doubling of job applications. I can see DailyPay as a service creating a major social impact for low income workers across the country while also improving employer-employee relations. A true “win-win” for business and workers. And, no tears shed if the worst of the payday loan shops feel the pain.
