Key Takeaways

  • A new study by researchers from KAIST and George Washington University, published in the peer-reviewed journal Information Systems Research, shows that,Earned Wage Access (EWA)can significantly help low-income workers save, monitor their finances, and engage in long-term planning.
  • According to the research findings released on March 2,moderate and consistent use of EWAcan increase the monthly savings frequency of low-income workers by 3.7%, boost financial dashboard monitoring frequency by 12%, and increase the proportion setting financial goals by 1.3%.
  • The researchers also found that if workers fall into a pattern of continuously withdrawing cash advances immediately, the benefits of EWA diminish—this pattern can inhibit their ability to set financial goals.

Deep Dive

Since 2010, companies such as Walmart, Uber Technologies, and DoorDash have allowed employees to access a portion of their earned wages before payday, either by partnering with EWA providers or offering related services directly.

Despite this, the benefits of EWA remain controversial.

This evolving industry continues to face resistance from shifting federal regulations, litigation, and inconsistent state policies. Consumer advocates argue that most EWA providers are for-profit and mayinduce workers to pay excessive fees, according to Payments Dive, a sister publication of CFO Dive.

Through EWA, low-income workers often have to pay related fees when accessing wages early on different platforms. Some CFOs also worry that these platforms mayleave workers short of funds to pay rent at the end of the month。

Although EWA provides workers with greater liquidity, the associated fees may be similar to payday loan products, carrying risks of overuse and creating a cycle of dependence—some advance services have anaverage annual percentage rate of about 110%, according to The New York Times.

However, researchers from KAIST and George Washington University—the authors of this new Information Systems Research report—argue that the self-empowerment concept inherent in EWA gives workers greater autonomy over the use of their income and promotes forward-looking financial behavior.

The report notes that about 25% of U.S. workers earn less than $35,000 annually and rely on each paycheck to make ends meet. Giving this group limited access to liquidity can help them overcome long-standing financial challenges.

Liquidity constraints and barriers set by financial institutions—including strict credit checks that limit access to funds—make workers vulnerable when facing unexpected expenses such as utility bills or medical emergencies.

This, the report says, drives workers to turn to payday loans for immediate cash, which come with high financial costs that can erode their cash flow and often lead to default or bankruptcy.

"Earned wage access changes the psychological and financial landscape for low-income workers," said Jihye Kim, a KAIST researcher and co-author of the report, in a press release. "By giving individuals control over when they access their income, earned wage access creates conditions for more prudent financial management, including increased savings frequency, more frequent monitoring of account dashboards, and setting specific goals."

The report, published last December, analyzed transaction-level data from approximately 4,000 low-income workers who used services through a major U.S. EWA platform between May 2021 and January 2022.

But the report also notes that although EWA helps many workers, the benefits are weakened when these workers exhibit "immediacy-seeking usage patterns" (such as frequently making paid withdrawals).

To mitigate this impulsive usage behavior, the researchers suggest that EWA platforms adopt behavioral design elements, such as in-app reminders or budgeting prompts, to guide users toward more prudent decisions.