When Uber and Green Dot last week rolled out Uber Checking By Go Bank, it offered little more than a slightly more convenient way for workers to get paid and to be paid more timely. In payments, though, it can be those little conveniences and small elements of automation that can build into a massive change. And who understands that digital disruption concept better than Uber—and payment facilitators.
The idea is straight-forward: When Uber drivers want to get paid for hours logged, use what Uber is calling Instant Pay. They can log in 24×7 and “cash out your earnings instantly and easily at any time, with no minimum deposit or transaction fees.” The cash is loaded onto their Uber Debit Card.
The near-term advantages are that workers control when they get paid—no more waiting until the company dictated date of, let’s say, the 15th of each month—and the account can be isolated. That isolation means that they don’t need to share sensitive bank account details with their employer if they don’t want to. (Personal disclosure: Years ago, I had a company that was direct-depositing payroll into my personal bank account double-deposit. They then went into the account and took back the excess, but a programming error caused them to take out a lot more than that excess. So, yeah, isolating where payroll’s not-necessarily-perfect people can access has some nice advantages.)
But let’s take this up a notch. If a company wants to, it always has the ability to EFT or wire funds to an employee’s bank account whenever desired. And an ATM/Debit-Card is easy to get for most accounts. That’s why this isn’t a major technological improvement—then again, disruptive payment changes are based realized by making things just a little bit easier.
What are the implications here for payments? If this approach is replicated widely, the very concept of “pay day” could evaporate, as employees grab whatever portion of their salary has been earned at the moment they need/want it. The dilution of paydays will have ripple effects on retail, which still see sharp spikes in communities on the days the largest area employers issue salary payments.
Personal budgeting will likely be re-thought, given that many consumers plan their spending to keep themselves financially afloat “until the next pay day.” Discipline and new personal budgeting habits will become necessary. The American consumer’s tendency to “spend it if I have it” would prove disastrous in an Instant Pay reality.
The potential disruptions are not unlike the way that Uber itself has forced radical changes in the automotive universe. It started out simply changing the need to hail a cab. Then it became so convenient that it started to force people to rethink rental cars. For that matter, why rent—or even buy—a car 24 hours-a-day when you’ll only be using it for drive maybe two hours? On top of that, you’ll have to pay to park it some of that time. Does that really make sense?
Interestingly, The New York Times ran a fascinating look into Uber’s disruptions, concluding that on-demand apps have mostly fizzled, with Uber proving to be the exception to the rule. Other on-demand app efforts, the story noted, start out with prices lower than what they are replacing, but once the investor deep-pockets run shallow, they are usually forced to boost prices.
The changes are huge when—like Uber—it leverages Internet efficiencies to deliver more convenient services at meaningfully lower costs. “Some of these services could make for fine businesses, but it is hard to call them groundbreaking. After all, paying extra for convenience isn’t really innovative — it is pretty much how the world has always worked,” the story said.
The reason Uber has worked is that the taxicab industry—and the whole car universe—didn’t have a solid foundation. The market was just asking for a radical change. For most markets, the routine market forces of supply and demand force pricing to an appropriate point.
In many ways, though, payments is due for some radical change. But we don’t need a single Uber-like company to force such changes. It’s too complicated and involved for that. An industry of change-players—such as payment facilitators taking banks to places they couldn’t get on their own—is what will do it. Green Dot’s made its first move. What will yours be?