Access to 'instant pay' app may increase financial instability

A Vancouver-based payroll app is disrupting the traditional pay cycle by giving workers instant access to their paycheques on a daily basis.

A handful of employers -— including Mr. Mikes and McDonald's -— have signed on to Instant Financial's services, which allow staff to withdraw up to half a day's pay within an hour of completing a shift.

"The program's really about taking a little bit of money and being able to go and buy some groceries, being able to pay a bill on time, being able to put a little gas in your gas tank and not worry about how you're going to get to work the next day," said Steve Barha, CEO of Instant Financial.

Safeguards in place

​Barha said the company has designed some safeguards to prevent users from compulsive spending behaviours, including the 50 per cent limit.

Users have one hour after they complete a shift to move the money into the app while the remaining pay for that day is deposited as usual by the employer.

Instant Financial has access to aggregate user data, showing that the majority of users are purchasing essentials such as gas and groceries and paying monthly bills with the app, according to Barha.

He said the data shows users are accessing the app two to three times in a biweekly pay period.

"That's not hyperbole. We're really seeing people use instant pay really specifically for those sort of trade lines; to buy gas, to pay their bills on time," which Barha said saves people from late fees, penalties and interest.

'Bad choices, more frequently'

Still, some financial experts warn that instant access could put users at risk of falling short of their end-of-month financial responsibilities.

Planning around larger, periodic lump sums is a better way to manage money, according to Mark Kalinowski, a financial educator at the Credit Counselling Society in Calgary.

"Where you're paid biweekly or once a month, you're more likely to be able to pay the rent and utilities, make sure there's gas in the car," he told Michelle Eliot, guest host of B.C. Almanac.

While Kalinowski said an instant pay system could be beneficial to people working in the so-called "gig economy," he doesn't see the value for workers who have consistent work.

"I just believe that this would give people an opportunity to make more bad choices more frequently," he said.

"But at the end of a normal month, maybe they've done this two or three times and now they can't pay their rent."

Responsible budgeting

Kalinowski advises workers look at their finances as a whole, prioritize basics and essentials while working backward from a biweekly or monthly budget.

For workers who are contract, casual or lack stability, Kalinowski said cutting unnecessary costs like coffees and cigarettes can save thousand of dollars a year.

B.C. Almanac caller and human resources expert Angela Colthurst said access to an app like this would have given her greater control and freedom over her finances when she was a single mother and student, living on a low income.

"You can plan forever but if something breaks down, you need money today," she said.

For people living paycheque to paycheque, the app could mean increased financial security when faced with emergencies or unexpected bills.

However, Colthurst said there needs to be safeguards for vulnerable people who aren't well versed in financial literacy. 

As for those daily lattés and avocado toasts; it's all about perspective; that coffee could be the one indulgence they allow themselves, she said.

"For someone with a low income, that may be their daily mini-vacation," said Colthurst.