The evolution of Earned Wage Access, or, in Marqeta’s (NASDAQ: MQ) case, Accelerated Wage Access (AWA), is part of a larger opportunity for employers to provide more efficient financial services to people they know better than most lenders – their employees.
Chief revenue officer Todd Pollak said AWA evolved as Marqeta’s relationship with major clients like Uber and some large retailers grew. As more data was generated on behavior patterns, Marqeta learned that most gig and shift workers live check to check, with many cashing out after every shift. AWA now accounts for 3%, or $2 billion, of Marqeta’s total payment volume.
Shift and gig workers are a big market, with more than 55 million in the United States. Provide services like AWA, and you foster loyalty while drastically reducing productivity-sapping annual churn that tops 50% in some sectors. Employees are coming to expect such options. Employers see payroll as a profit center and not an expense.
How AWA Differs From EWA
Pollak said Marqeta’s Just-In-Time (JIT) funding differs from other EWA options in important ways. Some EWA companies borrow funds to pay wages in advance of a payroll run. Because Marqeta isn’t a lender, they don’t borrow money to pay the wages. There also is no cost to run payroll, because they aren’t a payroll provider.
“There’s a significant delay between when people take their money and when they spend their money,” Pollak explained. “With JIT, we’re not moving money in the background from bank to bank until that money gets spent. As a result, our model is much more capital-efficient and much more cost-efficient. You don’t have to charge the worker because our model has historically been you make money off the interchange when it is spent.”
Marqeta Welcomes CFPB Clarity
The CFPB recently issued guidance stating that many EWA products are, in fact, loans. Pollak agrees with that interpretation, saying that if employer and subscription fees are charged, there is little difference between them and payday lenders.
Marqeta’s vision sees AWA as part of a broader set of capabilities that begins with wages placed into an account that the employee can access. This fosters opportunities for bill payment and credit services.
“Marqeta’s approach is much more holistic,” Pollak explained. “We think about it as a consumer financial hub or empowering the employer to become a credit union or neobank for their employees. That genuinely provides greater stickiness and loyalty.”
This capability is just a natural extension of employers having provided financial services such as health plans and 401 Ks for decades. Credit-building behavior gets reported to bureaus, giving employees a stronger profile. This opens up the opportunity of true revolving credit, with Marqeta as the processor.
How Traditional Finance Fails Gig and Shift Workers
Thanks to technology, it’s a different market than a decade ago. More companies are becoming financial services providers. As companies look for ways to retain employees, why not offer responsive financial services, instead of driving 37% to revolving credit?
“The entire financial services industry is not wired for the gig economy,” Pollak said. “We are big believers that employees should be provided with those capabilities by the employer, who has a much better understanding of their work histories. All of that plays into them doing things for them that a traditional bank will do but at no cost.”
Might we get to the point where wages are paid out instantly? Perhaps, and where streaming wages could begin is in the creator economy, Pollak suggested. Many YouTubers and TikTok personalities get paid in 30 or 60 days. The nature of how their content is consumed lends itself perfectly to instant micropayments.
“There’s a tremendous opportunity in the war for talent to provide better financial services for these folks,” Pollak said.
These sectors have the lead in embedded finance.
Pollak said digitally native brands have the advantage of providing quality embedded financial services. Such companies understand frictionless commerce and the value of optimization at the atomic level.
For two reasons, such companies are more likely to be interested in embedded finance. They have an established culture of knowing how to use data to deliver value, reduce friction and foster retention. Traditional retailers and finance companies tend to be more reliant on external partners.
“When you rely on external partners to learn, you rarely learn at the same rate,” Pollak said.
Many financial institutions sell a version of embedded finance offering a brand significant money upfront and then taking the lion’s share of revenue, reasoning that they’re taking the risk and better know how to manage it.
Such institutions reap the benefits of the partner’s brand. That’s going to change as brands learn they have better reputations than the banks and can easily leverage improved technology to provide effective service.
“It’s going to take time for people to understand that the risk is far less than they believe it is,” Pollak concluded.
State of Payments Report Shows US Contactless Payments Usage Behind UK, Australia
This week, Marqeta released its fifth annual State of Payments report where 4,000 consumers across three continents were surveyed.
- 46% of Americans used contactless payments in the previous seven days, compared to 69% in Australia and 80% in the United Kingdom;
- 56% used their mobile banking app in the past week compared to 67% of Aussies and 71% of folks in the UK;
- 29% of US consumers surveyed reported using an ATM in the last seven days, compared to 36% in the UK and 30% in Australia;
- 21% visited a branch, higher than Australia (14%) and the UK (12%);
- 53% of Americans feel confident enough to leave their physical wallets at home. That rises to 67% among those 18-25;
- 71% of American consumers were neutral or didn’t have any worries about moving to a cashless society; and
- 28% overall feel awkward when paying with cash, with 49% of those 18-34 feeling awkward
- 31% of American consumers reported using cash less than they did 12 months ago, compared to 35% in 2023;
Non-traditional financial services providers gaining a foothold
- 42% of US consumers would get financial services from a non-traditional provider, including a social media platform, retailer or tech brand, increasing to 63% among US consumers 18-34 years old; 66% of consumers ages 18-34 years old feel positive about this;
- 78% of US consumers use at least one additional financial provider outside of their primary traditional bank;
- Almost a quarter of US consumers surveyed consider themselves part of the gig economy, increasing to more than one-third for those 18-34;
- Of the US respondents who consider themselves part of the gig economy, 87% said immediate pay from services like AWA would attract them to use a gig work platform;
- 90% of US consumers surveyed who get paid immediately said it makes it easier to plan for finances and provides financial peace of mind;
- Of those who have to wait for their paychecks, 39% of US consumers said they’re more likely to use credit to make ends meet, rising to 44% for 18-34-year-olds; and
- 37% of all US consumers surveyed 18-34 years old said instant pay from services like AWA is a necessary benefit from their employers, above the 25% national average.
