Living Paycheck to Paycheck? There’s an App for That

One thing I find amusing as a frequent traveler is watching the targeted video ads change according to my location while I catch up on episodes of my favorite TV shows through the networks’ apps on my phone. A few weeks ago, I repeatedly watched an ad about mixing summer cocktails using Maine Spirits from the couch at my Portland Airbnb. A week later, after traveling a few hours south, the ad switched over to one for a local Boston bank I had never heard of. Now, I’m seeing ads encouraging me to visit places like Magic Mountain and Universal Studios because I’m in Los Angeles.

But no matter where I go in the U.S., I’ve continued to see ads for the same type of product: An app designed to help people who are facing the very common dilemma of living paycheck to paycheck. One is called Flipp and aggregates coupons for groceries and other essentials from local retailers. Now, this could help anyone who likes to save money, not just the paycheck-to-paycheck crowd, but the ad features a woman who says most of her paycheck is spent on groceries alone. Ads for two other apps, Chime and Earnin’, caught my attention more because they venture into the territory of providing actual financial services. Both apps claim to help people access funds from their paycheck before their actual payday, interest-free and fee-free.

My initial thoughts while viewing these ads were, first, why am I being targeted for them? I’ve had the opportunity to accumulate a comfortable amount of savings over the years, and can fortunately admit that I don’t know what it feels like to struggle paying bills or rent. Second, if credit unions are working to position themselves as the go-to resources for people who need help getting their financial lives on track, why am I not seeing any of their ads while sneaking in an episode of “90 Day Fiancé” at the airport?

Curious about whether credit unions should consider apps like Chime and Earnin’ threats or potential partners, or not bother thinking about them at all, I did a little investigating.

Chime is a digital bank offering checking accounts, savings accounts and debit cards, so it could be seen as a credit union competitor. There are no monthly fees, foreign transaction fees or minimum balance requirements, and it processes users’ paychecks immediately, meaning they can get paid up to two days early. It also claims to offer no overdraft fees, because it doesn’t allow users to overdraw their accounts; however, eligible users can sign up for a service called “Spot Me,” which allows for fee-free overdrafts up to $100. The overdrawn amount is deducted from the user’s next direct deposit, and users then have the option of leaving Chime a tip to “pay it forward.” According to its website, it makes most of its money through interchange.

Earnin’, on the other hand, is not a bank – it links to users’ bank accounts, and claims to be an alternative to payday loans by allowing users access to the money they earn each day as soon as they leave work. The app is linked to users’ employment timesheets and knows when they’re at work by tracking their location. It touts “no fees, interest or hidden costs,” but, it asks users to “tip what they think is fair” for using the service, “even $0,” according to the website. You can also “pay it forward” to other Earnin’ users by covering their tip. It also offers a feature called “Health Aid,” where users can submit photos of the medical bills they can’t afford to pay, and an “agent” negotiates the bill on their behalf (again, Earnin’ asks users to “tip what they think is fair” for this service).

So let me get this straight … technically, you can use Earnin’ to access your paycheck funds early and have someone negotiate your medical bill, totally for free, if you skip out on the tip. You could also dine at a restaurant and get your hair done without leaving a tip, but how would you be treated when you return to one of those businesses? Are these suggested tips really high-interest payments in disguise? Some people think so – the New York Post reported that Earnin’ suggests leaving a tip of up to $14 on a $100 loan, which equates to a 730% APR, and those who didn’t tip appeared to have their credit restricted. In March, New York regulators launched an investigation into Earnin’ to determine whether it’s violating state lending laws.

Paying it forward to other people in your community, saying no to the fees charged by big banks, getting help with your day-to-day money management … all of these concepts being pushed by start-ups Chime and Earnin’ are appealing to consumers and also very much in line with what credit unions are doing every day for their members. The biggest difference might be that a credit union is more likely to present its services with total transparency. When I first heard of these apps via their 30-second commercials, it was not clear to me that tipping was involved.

Another big difference is consumers who are struggling financially may be more likely to use one of these apps because credit unions are not advertising their services in the mainstream media enough, or in a way that the average consumer can clearly understand (this is something that CUNA’s national in-the-works campaign, Open Your Eyes, hopes to address).

It’s important for credit unions to keep an eye on the continued influx of these app-based fintech startups. Some may emerge as actual credit union competitors, some may become beneficial credit union partners and some may break the law and disappear. But what they may never have that credit unions do is longevity and the ability to provide personalized service built around trust.

Meanwhile, according to several reports, well over half of Americans are living paycheck to paycheck. This problem isn’t going away. Credit unions must continue their focus on helping their members to build savings, and make their service offerings more visible to the people who still don’t know they’re available.

Natasha Chilingerian is executive editor for CU Times. She can be reached at nchilingerian@cutimes.com.