The Revolut banking app gives consumers the ability to advance up to half their salary at any time of the month, thanks to a new feature.
Its new payroll access product, Payday, will initially be available to UK companies and their employees, and will follow in Europe and the US in the coming months.
The UK fintech company, which has more than 16 million customers worldwide, believes it will take the financial stress many workers face between monthly paydays.
Revolut, which now has around 3.5 million customers in the UK and over 16 million worldwide, has officially become the UK’s most valuable fintech company with a whopping price tag of £ 24 billion. .
He says it will also make them less dependent on high-cost credit products such as payday loans.
Nik Storonsky, Founder and CEO of Revolut, said: “We believe in the importance of making financial wellness accessible to everyone, and that includes focusing on the impact of financial stability on the mental health of people. employees.
“After the hardships of last year, the last thing employees need now is financial uncertainty and stress.”
He adds, “It’s important to move away from a situation where many rely on expensive short-term payday loans and credit, an addiction that is exacerbated by the monthly pay cycle.
However, others have expressed concerns about the app allowing some people to develop bad habits.
Andrew Hagger, founder and director of personal finance website, MoneyComms, said: “I can see this would help employees who suddenly have an unexpected expense to cover.
“But it’s not really something people should be doing every month, otherwise it could mean they might have a bigger problem with expenses exceeding their income.
“In a way, it’s just another form of overdraft.”
Nik Storonsky, Founder and CEO of Revolut, Believes His New Product Will Help Address People’s Addiction to Payday Loans
How will Payday work?
Revolut’s platform and app will connect to an employer’s payroll system, allowing employees to see their available accumulated earnings and select the amount they wish to withdraw directly to their main account earlier in the month. .
Employees will need to be Revolut retail customers and choose to receive their salary in their Revolut account in order to use the Payday product.
Payday will also only be available to customers whose employers have signed up for the service with Revolut.
The fintech company will charge a flat fee of £ 1.50 each time a client chooses to access their pay early.
It will also allow clients to withdraw a maximum of 50 percent of their accrued wages at any time, although this limit is at the employer’s discretion and can be controlled or reduced by each company.
Are there other products like Payday?
This is not the first payday advance system to be introduced.
There are other apps that give employees access to a portion of wages already earned, many not allowing clients to take more than 50 percent of their wages.
Hastee, which launched in August 2017, claimed to be the first on-demand income platform to be launched in the UK.
The app is used by more than 300,000 employees from several organizations across Europe, including NHS South London and Maudsley, Mitchells & Butlers and London City Airport.
It offers clients up to 50 percent of their pay up front and workers receive their first withdrawal, up to £ 100, at no cost.
Subsequently, he charges a 2.5% transaction fee – but he never charges interest.
In most cases, the fees are paid by the employee when they withdraw their earnings, but employers have the option of covering this cost for their staff.
Wagestream, which launched in the UK three years ago, is another well-established early warning provider.
To date, more than 200 employers offer Wagestream services to their employees in industries such as hospitality, retail, safety and health.
Like Hastee, it allows employees to access up to 50 percent of their earned wages, before the end of the payroll cycle.
While employers choose to pass on the cost of processing the transaction, employees typically have to pay £ 1.75 each time they access their earned wages.
Concerns that it could lead to overspending
While Revolut claims to offer a cheaper alternative to credit cards and payday loans for customers they might otherwise rely on to solve their cash flow problems, some reviewers see the new product as dangerous.
They fear this will lead to mismanagement of money and increased overspending among people who may already be in a financially vulnerable position.
Debt charity Step Change has warned that while payday advance programs can potentially be beneficial to those who might otherwise turn to high-cost credit, these products also carry certain risks depending on how they are used – for example if users fall into a cycle of repeated use.
Peter Tutton, Policy Officer at Step Change, said: “While wage regimes have their place in potentially helping people avoid more problematic forms of borrowing, we would like the FCA to build on the evidence gathered. on these plans, ensuring that the pay advances industry develops the strong and effective code of practice that the review recommended.
“The HM Treasury should stand ready to subject payday advances to FCA regulation, given any signs of growing harm to consumers.”
Payday critics say it could lead to increased debt for those already in financial trouble
Revolut, claims to have already put in place measures to alert those who abuse the product.
A Revolut spokesperson said: “We have designed responsible use alerts that ensure there is no overuse of the products.”
“In addition, we will monitor for indications that users may be in financial difficulty.
“When it appears that a customer is potentially at risk of financial hardship, Revolut will provide customers with warning messages regarding product use and, where appropriate, provide [them] with contact details for charities such as Citizens Advice Bureau and Stepchange.
“In some cases, we are also able to gradually lower the accumulated salary limit that an employee can access.”
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