Earned wage access: A use case for instant payments

The usage of instant payments has been accelerating. Financial Institutions (FIs) are increasingly focused on implementing the RTP^® network and the FedNow^® Service, which promises to enhance the speed and convenience of transactions for both consumers and businesses.

The emergence of the FedNow Service has raised questions about its integration into the existing financial ecosystem, which already includes established players like the RTP network. Larger banks have signaled a strategic but cautious approach towards adopting FedNow, acknowledging the inevitability of its implementation while also balancing the successful deployment of RTP. The challenge for FIs is to explore the best path to integrate new payment rails without disrupting the existing, revenue-generating structures. For smaller institutions such as community banks and credit unions, there is a gradual and organic growth in FedNow usage, similar to the early days of the RTP network.

In the realm of instant payments, Earned Wage Access (EWA) has become an increasingly important topic. EWA services offer employees access to their earned but unpaid wages before the scheduled payday. These services have risen in popularity, positioning themselves as financial wellness tools rather than lending services. The distinction is critical since it steers the service away from regulatory scrutiny typically associated with payday loans.

Financial institutions exploring partnerships with EWA providers are also considering the impact on cash flow and the overall customer experience. The challenge with EWA is multifaceted, involving regulatory compliance, integration with payroll systems, and the financial literacy of the end users. As FIs evaluate EWA solutions, they are keenly aware of the need to maintain transparent operations that align with consumer protection standards.

Financial institutions are also preparing for the significant changes associated with the upcoming Fedwire transition to ISO 20022, a global standard for more robust data-rich payments. The switch represents a major overhaul for thousands of institutions, with far-reaching effects across the global payment infrastructure.

In light of these changes, there is a compelling need for strategic investments in payments technology. FIs are prioritizing spends and evaluating vendor relationships to ensure that they can support the demands of faster payments and intelligent routing. These institutions seek the right partners who can navigate the complexities of modernization while delivering value to their customers.

As the industry progresses, the agenda for FIs continues to evolve. Topics such as cross-border payments and their inherent challenges of speed, transparency, and cost efficiency are becoming more prominent. The demand for better cross-border payment solutions is particularly rising among mid-market corporates, where digital, real-time financial services are expected to grow.

Earned Wage Access is just one use case for instant payments. Read more in The Sky’s the Limit: How Financial Institutions, Businesses, and Consumers Can Leverage Real-Time Payments to Add Value, Convenience, and New Streams of Revenue.

Alacriti’s centralized payment platform, Orbipay Payments Hub, provides innovation opportunities and the ability to make smart routing decisions at the financial institution to meet their individual needs. Financial institutions can take full ownership of their payments and control their evolution with ACH, Wire, TCH’s RTP® network, Visa Direct, and the FedNow® Service, all on one cloud-based platform. To speak with an Alacriti payments expert, please contact us at (908) 791-2916 or info@alacriti.com.