What

The Clearing House is a payments utility processing $2 trillion per day; it manages payments networks for its 24 member banks and handles the risks involved in those processes. In 2017, The Clearing House launched Real Time Payments (RTP), which immediately processes funds at any hour. Notably, RTP permits earned-wage access (EWA) capabilities, meaning payroll companies can allow workers to withdraw their earnings at any time, not just at traditional payroll increments. 

Why

US payments infrastructure relies upon largely outdated technologies that are “not fit for purpose for a digital world,” said Jim Colassano, SVP of Product Development and Strategy at The Clearing House. Especially since the onset of the Covid-19 pandemic, when people could not physically cash checks, consumers have grown to expect modern and immediate disbursement options. 

At the same time, most US families are precipitously close to bankruptcy at any moment—with the average family unable to afford a $200 emergency payment. This often forces workers to take out payday loans, especially when a scheduled payroll date falls outside normal bank hours, which can lead to serious cash flow issues as well as overdraft fees due to direct deposit utility or other household payments. 

To Colossano, offering earned-wage access through RTP is a clear competitive advantage for recruiters. “One of the things [recruiters are] getting asked by employees is flexibility in… terms of pay cycles,” he said. “Can I determine what my pay cycle will be, can I get an advance on my pay if I need it, or can I get the pay that I’ve earned before the pay cycle?” In addition to the competitive edge this offers in a tight labor market, these modern payroll products can assist in employee retention and morale. 

How

Through “request for payment” mechanisms rather than automatic debiting, The Clearing House built payments infrastructure that both solves for security as well as timeliness. “We built a lot of safeguards around it to make sure it was an extremely safe system, but at the same time, we realized that in order to be accommodative of the direction that commerce was taking, that it really needed to be instantaneous,” Colossano said. Through this mechanism, a payment request comes through, and the requesting party subsequently receive a real-time payment approved by the payer. This system also benefits banks and small businesses, since banks do not need to take the time to ensure that payments are in good funds. 

“That provides an incredible amount of flexibility to the employer and the employee, and it also provides certainty to the payroll providers, since they're not taking any risk on the front end,” Colossano said. “They're providing something to the consumer on the other side, so it helps every party in the process and creates efficiency all along the scale.” 

The Clearing House anticipates greater demand for EWA capabilities due to upcoming headwinds, as workers face greater cash flow issues. But it’s also starting to see some debt-related indirect competitors move toward earned-wage access—namely payday lenders—whoa re beginning to offer greater control to applicants as well. As the incumbent in payments, The Clearing House has the power to shape the payments landscape in its image, and encourage smaller players to pivot to product features that accommodate worker needs.