Earned Wage Access Has A Serious Tipping Problem

Earned wage access allows employees to receive part of their paycheck before payday. Many Americans use these advances for groceries and gas to help solve their short-term liquidity challenges.

Earned wage access apps like EarnIn, Dave, and Empower are now frequent destinations for many Americans living paycheck-to-paycheck as borrowers using earned wage access platforms take out an average of 36 loans yearly, per the Associated Press.

Many earned wage access apps charge monthly subscription fees and fees for instant funds transfer. But even more problematic is that many apps profit from “tips.” The California Department of Financial Protection and Innovation found that 73% of consumers tipped at an average of $4.09 per tip on 5.8 million transactions in 2021.

Typical users of earned-wage access apps earn less than $50,000. So, why are so many Americans tipping on loans while living paycheck-to-paycheck?

Pressure tactics and guilt. Many financially vulnerable users feel compelled to leave tips over claims that tips are being used to support other vulnerable consumers or charitable purposes.

Earned wage access fees are so high that some states are moving to cap their fees through regulation. Another expert described them as “payday lending on steroids.”

The story of earned wage access is part of a broader problem of American businesses relying on customer tips to address shortcomings in their business models.

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