London-based financial technology company Revolut has recently released a feature that allows users to unlock up to 50% of their wages early for a ‘small, flat fee’. This percentage will be monitored and controlled by the employer and may be altered in line with company policies. ‘Payday’ also includes a tracking feature, which allows employees to keep tabs on their earnings and the amount that is able to be withdrawn from their account each month.

Revolut assures that businesses are able to access this feature for free, and the process is a simple integration into the payroll system. This will also not affect cash flow, as employers will still pay salaries at the end of the month. Once a business is integrated with Payday, employees will be able to access funds directly from Revolut’s app.

With over 15 million users worldwide, Revolut’s new feature will unequivocally affect the way many control their finances. Currently, it is only available in the UK, though plans to expand to the European Economic Area and US are currently in the works.

Benefits

Separate from short-term loans and credit card debt, Payday does not affect your credit score, as the money taken out is already earned as a part of your monthly paycheck. This means that at the end of the month, you will receive the untouched portion of your wages.

Revolut argues that this will provide more flexibility to users when unforeseeable circumstances, such as house repairs or accidents, occur between paychecks. Users will no longer have to request loans, nor be forced to use interest-bearing credit cards. This releases them from accruing debt throughout the year. In a statement, Revolut CEO Nik Storonsky said:

‘We believe in the importance of making financial wellbeing accessible to all, and this includes focusing on the impact of financial stability on employees’ mental health. After the difficulties of the past year, the last thing employees need now is financial uncertainty and stress. It is important to move away from a situation where many are dependent on payday loans and expensive short-term credit, a reliance that is exacerbated by the monthly pay cycle’

Possible drawbacks

Although this system has many benefits, the importance of which are heightened by the current precarity of the job market, there may be several downsides to Payday, especially for those who aren’t financially literate.

Being bound to monthly paychecks teaches discipline. Research shows that employees prefer to be paid monthly, as it is more rewarding, teaching responsible money management.

In recent years, leading fintech companies have introduced innovative tools for money management and loans. Afterpay and Klarna are often cited as companies at the forefront of a changing financial landscape. These services are displayed as options on retail websites, allowing shoppers to ‘pay later’ or in instalments, up to 30 days after purchase. A Financial Times article has stated that such practices involve ‘rebranding debt’ with an accessible app and logo, writing that ‘fintech firms can make debt look like an appealing lifestyle choice’.

Although this may not directly relate to Revolut’s Payday, this mindset has the potential to indulge those who are impulsive in their monthly investments and foster reckless spending.

Packaged as a solution with a friendly, relatable interface, this may be seen as a tempting, encouraging alternative and may lead to uncontrolled finances.

As there is less income at the end of the month, users may look to borrowing and incur debt again, making the feature futile.

It is also important to note that such salary advance schemes remain unregulated in the UK, and Revolut is not covered by the Financial Services Compensation Scheme, which protects up to £85,000 of user money if the company were to go under.

Conclusion

As the UK’s most valuable startup, with a £24 billion valuation and a wide reach of over 35 countries, Revolut will continue to set the bar for what banking and money management will look like in the future.

New technologies such as Payday will undoubtedly alter the way employees handle their money. Although there are benefits to such systems, it is important to do research and adopt healthy financial habits. When dealing with monetary transactions, promises of ease and efficiency must be taken with a grain of salt.

About the Author: Shadine Taufik

Shadine Taufik is a contributing Features writer with expertise in digital sociology and culture, philosophy of technology, and computational creativity.