UK digital banking start-up Revolut has announced that it will allow customers to access up to half their monthly salary before they are paid.
Using the ‘Payday’ service, workers will be able to draw out wages they have already accrued for a flat fee of £1.50 each time.
Financial wellbeing
Could early wage access improve financial wellbeing?
Eligible customers will be able to access the service from the Revolut app, and will only be able to withdraw money they’ve earned but not been paid yet.
Revolut’s app will link to an employee’s payroll system and the company said it is in the process of partnering with UK employers to make this possible.
Chief executive Nik Storonsky said the option would help employees deal with the financial uncertainty facing them since the pandemic hit, reducing the risk of them turning to payday loans or other expensive forms of alternative finance.
He said: “We believe in the importance of making financial wellbeing accessible to all, and this includes focusing on the impact of financial stability on employees’ mental health.
“After the difficulties of the past year, the last thing employees need now is financial uncertainty and stress. It is important to move away from a situation where many are dependent on payday loans and expensive short-term credit, a reliance that is exacerbated by the monthly pay cycle.“
Using the service will have no impact on an employee’s credit score, he added. The service will initially be available to UK employees, with European and US workers to follow.
Although Revolut is the first banking company to offer earned wage access, it has been growing in popularity in recent years, accelerated by the financial turbulence of the pandemic.
Payroll provider Sage recently announced a partnership with early wage access company FlexEarn, enabling Sage clients to offer earned wage access to employees at no extra cost but at a £1.50 flat fee for employees.
Other fintech companies in this space, such as Wagestream, have raised millions in start-up funding from investors. Revolut itself was recently valued at $33 billion in a funding round.
James Andrews, senior personal finance editor at money.co.uk, warned that increased access to early salary schemes could exacerbate overspending in some cases.
“Revolut are framing the ‘Payday’ offering as a solution to help working Brits who may be struggling with their finances. But how many will realistically be using it as a way to rid themselves of accrued overdraft charges and expensive credit card debts? And how many will simply see it as another form of free money, or as an excuse to live outside of their means more regularly throughout the month?
“Someone budgeting responsibly who already has a savings buffer to cover unexpected bills will see very little benefit from this, which means it’s only helpful to people who are already close to the edge financially.
“The danger is that people with poor planning will use it at the wrong time, or see it as an excuse not to have to budget or think things through – meaning when bills do come in their debts will rise immediately and they will be charged more overall as they are paying interest for longer.
“Rather than launching products to generate headlines, brands like Revolut should instead be focusing their efforts on tackling the deeper issues of long term debt and irresponsible spending.”
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