Like a growing number of hourly workers, Jenna Gallegos no longer has to wait two weeks to get her wages. Instead, she can be paid every day.
She uses a service called DailyPay to get money for hours she's already worked before payday. "It's very convenient — especially if you have an emergency come up and you need money right then and there," she said.
Gallegos uses DailyPay a couple times a week, but she added that she sometimes takes out too much money and finds herself in a hole later on. And she doesn't love that she has to pay a small fee. Still, she's glad it's an option.
DailyPay is one of many paycheck-advance apps that have popped up in recent years that give workers early access to their earned wages. Some like Earnin are available for anyone to use. Others, including DailyPay and others such as Branch, Even and Payactiv, are offered to workers through their employers.
At a time when many companies are struggling to find workers amid the pandemic-induced labor shortage, some employers are looking at offering these services as an added perk to help recruit and retain workers.
Proponents of these services note that they offer workers who live paycheck to paycheck much better alternatives to payday loans, cash advances, late payment charges and overdraft fees.
Consumer advocates warn that the services should be used carefully, especially since some of them charge small fees for the early transfers.
The Twin Cities area, which has been a financial services hub for decades, has seen some of these firms set up operations here.
In 2019, New York-based DailyPay opened a second office in downtown Minneapolis, which has quickly grown to 150 employees and now houses its customer support center and payments processing. After raising another $175 million in a Series D round of funding in May, when it was valued at more than $1 billion, DailyPay is now planning to add another 50 workers in the Twin Cities by the end of the year.
Meanwhile, Branch, a Minneapolis-based fintech firm that pivoted from helping employees swap shifts to accelerating payments to workers, is planning to double its headcount to 200 by next year. Branch also recently secured $48 million from private investors and a $500 million line of credit in a Series B round of funding.
Jason Lee, CEO of DailyPay, says that such services are growing in popularity as people have become accustomed to being able to move money when they want, such as paying a friend a couple bucks through Venmo when going out for a slice of pizza.
"All of us as consumers have been habituated toward money moving instantly and money being controlled in the palm of our hand," he said. "What we want to do is create a world where minute to minute, hour to hour, day by day, you can control all aspects of your pay in the same way you can control all aspects of your checking account."
Last year, DailyPay signed up one of its largest employers for the service: Minneapolis-based Target, which employs nearly 400,000 workers across the U.S. It also works with other large companies such as Dollar Tree and Big Lots.
DailyPay charges workers $2.99 for an instant transfer. For a next-day transfer, it's $1.99 or free depending on the contract. Company executives note that is cheaper than some out-of-network ATMs.
"It may not sound like much," said Ted Rossman, senior industry analyst for CreditCards.com, but the fees can add up and take away from money you could be saving. "It can be a slippery slope."
While it's not technically a loan, Rossman said that a $3 fee to take out $100 over two weeks is the equivalent of a 78% annual percentage rate.
But he said he understands why some workers may want to use these services in a pinch. "There are not a lot of great alternatives, which is why I think we're seeing these kinds of things spring up," he said.
Branch, which works with companies such as Kelly Services, doesn't necessarily charge a fee for accessing wages in advance, but it does for instant transfers to an external debit card.
The goal, Branch CEO Atif Siddiqi said, is that consumers won't have to use paycheck advances regularly and that they build a cash cushion.
In financial services, such businesses are known as the earned wage access industry — and they are largely unregulated.
Some consumer advocates want the U.S. Consumer Financial Protection Bureau to rescind its decision last year to not consider such services as credit providers, exempting them from certain consumer protection laws.
In the meantime, employers say these paycheck advance apps have become quite popular with their workers.
Since it began offering DailyPay last spring, about 100 of Mary T's 900 workers use it in any given week, said Jason Tjosvold, chief administrative officer for the Coon Rapids-based provider of home and health care services.
Mary T previously offered loans to employees who needed emergency funds, but some workers found that process cumbersome and didn't like how long it took.
"It's challenging for people to reconcile how they can get a ride or order a meal and get it within a half hour," said Tjosvold. "But if you work on the first Sunday of our pay period, you don't get paid until 20 days afterwards, so [that is] essentially three weeks."
Mary T is in an industry that is always struggling to fill positions, a challenge made worse by the pandemic. So adding DailyPay as an option has also been an additional recruiting tool in addition to other things it's done such as referral bonuses, increasing its 401(k) match, and providing more vacation time.
Mall of America, which pays its 600 or so employees twice a month like most employers, started offering DailyPay in 2019.
"Employees want choices and the ability to access their pay when they want," said Carrie Wright the mall's vice president of human resources.
About half of the mall's staff has enrolled in DailyPay, meaning they've logged in and created an account. And about a quarter of them are considered engaged users, making an average of 2.5 transfers a week, with the typical amount being $100, according to the mall.
Still, not everyone is rushing to use these apps. Zetta Sharkey, a custodian at the mall, isn't interested in getting part of her paycheck early.
"I'm old school," she said, adding that she prefers to get paid every two weeks.
That way she doesn't get tempted to spend it right away, which she added could happen a lot since she works at a mall.