Walmart and Earned Wage Access with Payactiv - What Went Wrong?

Technology

Walmart's Early Pay Perk Is Popular, But Sometimes Has a Cost

By Jennifer Surane and Matthew Boyle March 9, 2021, 8:00 AM EST Updated on March 9, 2021, 4:42 PM EST

Keeping employees was part of the goal, but some turnover rose Other employers have copied Walmart in adopting the perk Three years ago, Walmart Inc. offered hundreds of thousands of its U.S. workers a new perk.

Employees loved it. Rivals copied it. Now Walmart has reached a conclusion: It hasn’t quite worked as expected.

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The perk is an app that gave employees the ability to tap their wages before payday, along with a bevy of other tools that helped them save more and forecast their earnings. It was supposed to help employees feel less stressed while boosting retention, among other benefits.

But it turns out employees who often choose to get paid sooner -- without using some of the app’s other tools -- turned over faster, a recent internal review found. When employees paired the on-demand-pay with frequent use of the app’s other budgeting and saving features, though, it helped with retention.

That nuance has got the world’s largest retailer rethinking how it pitches the app.

“Our associates are out there in the front lines every day helping to feed and clothe America,” said Adam Stavisky, senior vice president for U.S. benefits at Walmart. “If we can have them focus more on their customers and less on some of the stresses that we all have in our lives, that’s good for our associates and, again, it’s good for our company.”

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Read more: Walmart’s Fintech Partner Helps Break Paycheck-to-Paycheck Cycle Walmart’s results illustrate the complexity of offering perks across a U.S. workforce of 1.5 million.

While rivals like Target Corp. and Costco Wholesale Corp. have boosted starting wages to at least $15 an hour, Walmart has declined to budge beyond the $11 floor it set three years ago, instead dangling benefits like college tuition for $1 a day and expanded adoption and parental leave.

To evaluate the app, Walmart studied 269,000 employees hired over a seven-month stretch in 2018. One result was instantly clear: The perk was popular among new employees. One-quarter

of those eligible to enroll did so within the first 60 days of work. It’s since grown to be Walmart’s second most popular benefit, behind only the 401(k).

Walmart then took a closer look at those employees who took advantage of the on-demand pay feature every other pay period. Among those workers, if they checked the app less often, the retailer found that more than half were expected to quit within their first six months. For those checking the app more often, that number dropped to 30%.

Financial Stability “At the end of the day, most consumers don’t want access to their pay every day; what they want is financial stability,” said Leslie Parrish, a senior analyst at Aite Group. “So earned wage access is providing that in the short term but they really need a broader set of tools to become financially sufficient.”

To be sure, Walmart counts its work so far with the app as a success, noting it’s helped employees pay less in bank fees and avoid costlier loan options.

“It was encouraging to us because this is much more than access to earned wages,” Stavisky said.

“The combination of support seems to be the most helpful. And we found that virtually all associates across all income levels want help managing their money.”

The findings are important because where Walmart goes, many other employers follow. After the retailer debuted the perk in 2017, other major companies jumped to offer similar options, including the country’s largest traditional grocery chain Kroger Co., and Flynn Restaurant Group, the largest U.S. franchise operator and owner of hundreds of Applebee’s, Arby’s and Panera locations.

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For Walmart, the study presents a bit of a catch-22. The retail giant wants to ensure its workers are taking advantage of the app’s savings and budgeting methods. But it’s clear that allowing access to wages sooner was what drove adoption. The trick will be to convince more employees to regularly use the tools in the app that help with personal finances.

“Many times, HR and businesses start lecturing people, ‘You don’t know how to manage finances,’” said Safwan Shah, CEO of PayActiv Inc., one of the startups that helped Walmart offer the app. “If you don’t give them this tool then they won’t go into the app, because then it’s just a lecture on how to save money. And nobody wants that.”

In some ways, though, the need for budgeting and savings tools has never been more clear.

About a third of U.S. consumers regularly run out of money before payday, Aite Group found.

Roughly 37% of Americans say they cannot deal with a $400 shortfall with the cash they have on hand.

For now, Walmart is analyzing the ways it advertises financial-wellness perks to employees and hopes to focus more of that marketing on financial counseling or credit building, Stavisky said.

Related: Walmart’s Latest Foray Into Finance Makes a Friend of an Old Foe The findings will also be shared with executives who oversee financial offerings to customers.

Separately, Walmart has said it is creating a startup that could provide banking services for employees and the public.

“The key takeaway for Instapay should not be: Don’t offer it. The key takeaway should be: You have to offer it within the context of giving people good information,” said Jon Schlossberg, cofounder and executive chairman of Even Responsible Finance Inc., another startup behind the app that provides the budgeting and savings tools. “They don’t need to use it that often when they are given good information.”

— With assistance by Thomas Buckley (Updates with information from Walmart in 10th paragraph. An earlier version of this story corrected Schlossberg’s title in the final paragraph.)

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TARGET CORP

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