Originally posted at: www.businessweek.com
By John Tozzi
… FlexWage makes advances out of employers’ payroll accounts, based on hours workers have already put in. Clients get Visa cash cards to pay salaries, which FlexWage says cost half as much as paper checks. Workers pay $5 or less for each cash advance, and employers pay $1 to $2 monthly per employee for the cards. Companies can limit how much workers take in advances, because the goal “is to eliminate the need for an employee to go to a payday lender, not to give them daily pay,” says CEO Frank Dombroski, a former credit-card executive at JPMorgan Chase. FlexWage says it has signed up five employers since it started offering loans in July…
One that did: 1-800 Contacts, a 750-employee contact lens retailer based in Draper, Utah, that began using FlexWage in July. The company didn’t expect any financial benefits from the switch. HR Director Rod Lacey says he recognizes that “financial struggles are a significant cause of workplace and personal stress” on employees. A few dozen workers have borrowed $50 to $700, Lacey said in an e-mail. The company wanted to let them tap emergency cash, Lacey says, without resorting to “less prudent and high-cost options.”
The bottom line: Startups want to replace payday loans, which have interest rates of about 400 percent a year, with money delivered through employers.