Financial technology firms have developed instant-pay applications, freeing up payroll restricted wages for cash-strapped individuals. These apps function similarly to payday loans by fronting part of employees’ earnings. As a result, they do not have to rely on credit cards and add on to existing debt — in theory.
These instant-pay services are described as conveniently “bridging” financial gaps in emergency situations, and implementing them isn’t difficult nor troublesome for employers. Though this ease is a detriment to overall societal welfare. The firms behind the apps have taken notice of the most vulnerable portion of the economy and, unsurprisingly, have begun targeting them.
Making credit more accessible to low-income, blue collar workers is admirable — but that’s not what’s happening here. Instead, these apps are pushing them to take on micro loans packaged as paycheck advances. Since they’ve already earned these wages and often need them to pay for necessities, this service is, practically speaking, irresistible.
It does provide a rainy day fund for individuals to draw on. Currently, only three out of 10 American adults have emergency savings and that statistic is undoubtedly skewed towards the class-privileged. But, how can you save when every single cent of your disposable income can barely cover your daily costs? These instant-pay apps objectively provide the worst type of rainy day fund — one that initiates a vicious cycle and isn’t directly controlled by users.
These people are borrowing from their future to avoid disconnect fees or late fees on bills. After, they have to pay off this loan with their next paycheck, recreating the same financial void that these apps are supposed to resolve. Yet, because of the smaller scale of these loans, the people using these services can’t notice themselves becoming increasingly dependent on loans.
Proponents of this technology argue that this “opportunity” is encouraging people to request more hours to cover last-minute or upcoming expenses. While this may prove beneficial to management, the workers shouldn’t have to rely on advances to begin with. This technological innovation is trying to disguise the underlying issue of a insufficient minimum wage poorly.
As evidenced by their need to use this service, this country’s blue collar workers urgently need a living wage. In most cases, they are living paycheck to paycheck and lack a genuine support system to fall back on during emergencies. Stagnant wages cannot be justified when the costs of living are rising everywhere.
Companies can absolutely afford to pay their largest employee groups more. They do not need to compensate their chief executives with that much money — it’s quite difficult to exhaust that amount of wealth in a lifetime. That being said, that means there is so much room for income redistribution now.
What is necessary in the long term is a new approach to capitalism. If inequality is allowed to become any worse, this economic system will collapse on itself. The solution to bridging this particular gap is not some predatory fintech creation. It is those of us, who benefit from capitalism’s existence, taking accountability for letting this country become so unequal.