Low-wage workers often have trouble accessing credit because they either have poor credit scores or, as is the case for many immigrant workers, no credit score at all. Many turn to payday lenders offering short term loans to those locked out of the mainstream credit system at a steep cost. Payday loans are considered predatory with the potential to trap borrowers in an endless cycle of ever-growing debt. In recent years, an industry has emerged with a data-based solution to this problem: rather than relying on traditional credit evaluations that miss low-wage workers, fintech companies access payroll data and route it to lenders to inform their decisions. The result is faster access to money at lower cost for workers, but critics argue that users may pay a high price in terms of privacy and that these products ultimately help employers avoid paying higher wages.

Connecting Workers with Low-Cost Credit

The most common use case for payroll data in lending barely seems like lending at all (in fact providers insist that is it not). Many workers across the United States rely on cash advance apps to access income that they have already earned between pay periods. The majority of workers in the United States get paid every two weeks, or even less frequently. Apps like DailyPay, Payactiv, B9, and Earnit offer workers the opportunity to access some portion of earned wages for a small fee. Some companies go beyond earned income advances and offer bigger loans. Payday lenders justify their high interest rates with the fact they do not require a credit history, making the loans theoretically risky. Cash advance apps avoid this problem by accessing workers’ payroll information and other work information to rest assured that that the amount of cash advanced is really forthcoming. The data they collect on workers effectively serves as an alternative credit score.

Making money available on demand for a relatively low fee has significant benefits for low-wage workers. A 2019 Harvard study found that the $5–10 flat fees charges by many fintech companies offering payday loans have a clear advantage over the typical $35 bank overdraft fees that workers living paycheck to paycheck often face, not to mention the 400% APR intertest typically charged by payday lenders.

Accessing Payroll Data

Alternative credit providers rely on a new and growing ecosystem of employment data aggregators. Argyle, a major player and self-described first mover in the workforce data space, provides an Application Program Interface (API) that retrieves data on workers and makes it legible to fintech companies. Argyle’s primary niche is in the gig economy, where incomes are irregular and data is rich but dispersed between apps. Argyle collects and organizes this data in one place, creating comprehensive worker profiles. In 2021 Argyle drew negative attention for paying workers to share their payroll login credentials so that it could access data and build the product. Without explicitly referencing this practice, Argyle frames its approach as centering workerconsent in data gathering, unlike traditional players like Equifax, which source data from employers.

Estimates peg the potential value of the burgeoning workforce data industry at $10 billion, though Argyle itself predicts it could be worth much more, seeing use cases in insurance, lending, and banking. As it is, Argyle earns money by charging a fee to fintech companies, including a continuing fee for consistent monitoring. Fintech apps are notified any time a user’s pay or employment data changes, allowing them to adjust their credit offerings accordingly.

Privacy Concerns

Critics argue that this emerging system comes with significant privacy costs and opens avenues for discrimination. Argyle’s CEO sees great value in the granularity of data that it gathers, including reputational data. The inclusion of reputational data raises serious red flags for worker advocates because of their tendency to incorporate racial bias. Reputational data includes a worker’s customer star rating, on-time rate, and deactivation rate from gig work apps, all of which rely on potentially biased customers. Uber has been sued over its customer ratings system, which has led to nonwhite drivers getting kicked off the app due to low customer evaluations at significantly higher rates than white drivers. Incorporating the same data into financial products perpetuates and magnifies this harm.

Earnin, one of the biggest cash advance apps with millions of users, does not actually use payroll data, to verify income. Instead it requires users to share their work address and GPS location to verify physical attendance at work. As one worker told Wired, he objects to the invasiveness of GPS tracking, but “They’ve kind of got you by the balls when they’re dealing with your money and you’re trying to scrape by.”

Unregulated Space

To that point, critics also argue that the financial products offered by cash advance apps are not so different from traditional payday loans. As with payday loans, many workers get stuck taking out one advance after another. While some apps charge a flat fee, Earnin claims not to charge users anything at all, and instead suggests that workers leave an optional “tip” in the app to pay for the service. Optional though it may be, workers have reported that their funding cap went down after declining to tip. Jill Schupp, a Democratic state senator from Missouri, has said that Earnin and apps like it are really just ways to evade rules around payday lending. She has argued for state regulations to address cash advance apps.

“Financial Wellness” Instead of Higher Wages

Employers sometimes actively partner with cash advance apps to offer workers the option of daily payouts. Some argue that these products ultimately serve employers by distracting from the deeper issue at hand: wages that are too low to provide workers with financial stability. Focusing on pay frequency recasts an income problem as a cashflow and personal financial management problem. Walmart, the biggest private sector employer in the country, combines two apps, PayActiv and Even, which give workers access to cash advances, and also provide tools to “nudge” them toward better financial management practices. Of the second feature, former Walmart senior vice president Daniel Eckhert said, “Quite candidly, most of America is living paycheck to paycheck and that’s not a socioeconomic problem, that’s an American problem that spans multiple socioeconomic classes whether you’re an hourly associate or a management associate.” Walmart is notorious for having many employees who must rely on food stamps to make ends meet. Like SNAP benefits, cash advances are surely a lifeline to workers. However, it bears questioning what kind of employer leaves so many workers needing both.

With improved paperless technology, there is no legitimate reason why biweekly pay should remain the status quo. Fintech companies have stepped in with a solution, but there is a notable absence of legislative efforts to address the issue even though most states already regulate pay frequency in some way. It may be that cash-advance apps and data aggregators like Argyle are uniquely positioned to help workers, particularly in the fragmented gig economy. However, many of the cashflow problems that these technologies purport to solve could be addressed with public efforts to require more frequent paydays, and, most importantly, higher wages, without compromising worker privacy or exposing workers to potential discrimination.