Are employers the latest financial services disruptors?
Deeply personal and often deeply fraught, financial decisions reflect our values, hopes, dreams and fears. Money is a leading cause of stress amongAmericans and our relationships. The stress can greatly impact personal lives and make it hard to focus at work.
Meanwhile, access to financial services and qualified assistance is expensive — especially so for low-income individuals. Traditional banking model fees and rates tend to disproportionally impact the lower income earners who can least afford it. Beyond being expensive, most financial services offer usability challenges, including significant administrative hurdles and high-levels of financial literacy.
Financial stress is taking its toll on the workplace. A 2017 PwC survey found more than half of workers surveyed to be stressed about finances. Forty-six percent of workers surveyed spent 3 hours or more per work week dealing with or thinking about their financial challenges. In another study, four out of five employers reported that personal financial concerns impacted employee job performance. All of these distractions lead to a significant cumulative negative impact on the corporate bottom line.
At the same time, many employers are engaged in a fierce battle for talent, actively seeking ways to attract and retain new, and increasingly expensive, employees. Meanwhile, older employees are staying onboard longer, working past standard retirement ages due to longer lifespans, a savings shortfall, declining pensions and long-term financial insecurities. Employers are seeking ways to make all of their talent, from the freshest to the most mature, as productive as possible.
Numerous employers have realized that the financial well-being of their employees can impact productivity and, ultimately, profitability. They’re also realizing that direct financial services and financial advisory services are attractive — and sticky – benefits for employees.
As a result, many employers are beginning to offer financial services to their employees. In one 2016 study, 58 percent of employers surveyed stated that they already offered financial wellness benefits, and 84 percent expected to do so by the end of 2017.
The growth in employee-delivered financial services is an evolution, not a revolution. We saw a comparable phenomenon in the early days of healthcare when employers began to realize that ill employees who couldn’t afford proper care would be unable to work.
Ultimately, sick employees cost companies money in the form of productivity loss. Employers started addressing this issue by paying for and offering insurance through third-party providers. Over time, healthcare became an integral component of the corporate benefits suite.
We are in midst of a similar evolution with financial benefits. Many employers used to offer pensions. Then, as those declined, employers starting offering 401Ks. Today, more companies are expanding that footprint by offering more complete financial wellness benefits to their employees.
Employers are uniquely positioned to deliver financial services for the following reasons:
- Employers are not doing this to make money — Unlike banks and fintech companies, the employer isn’t necessarily out to make money on financial services through fees and high interest rates. This enables employers to offer financial services at a lower rate than consumers could access on the open market. It also enables employers to make sure that all of their employers, regardless of background, income level or credit history, have access to financial wellness services, similar to the way in which employer-sponsored health plans provide all employees access to healthcare.
- Lack of profit motive builds trust — In the wake of financial scandals, consumer confidence in traditional financial institutions is low. Consumers are more likely to trust financial services offered by employers who have no profit motive beyond employee productivity than they are to trust the financial institutions whose profit motives are in conflict with consumer interests.
- In fact, employers are willing to spend money — Employers can absorb and subsidize the cost of financial products, confident that the productivity and engagement gains will yield positive returns relatively quickly.
- Employers have access to payroll funds and data — Employers control payroll, meaning they have can fairly easily direct funds according to user wishes. This is made even easier because they have their employees’ detailed personal and financial data, creating a seamless employee signup process. The ready access to this data reduces employee effort to sign up for and set up services with multiple vendors. Furthermore, access to payroll allows employers to put many good financial habits on “auto pilot” through payroll deductions, further saving employees time and administrative hassles.
There are countless financial benefits employers can offer to employees — everything from payday loans leveraging earned income in non-standard currencies like hours or vacation time, to tuition reimbursement and student loan paydowns, to credit counselors and financial concierge services. The list is as exhaustive as is the opportunity for innovation.
The timing is ripe for employers to play a more integral role in their employees’ financial lives – and most leading employers know it. Financial services companies, investors, employers and employees should all take note: We are at the beginning of a movement as big as employer-provided healthcare. The potential disruptive impacts — and opportunities for innovation — are boundless. In the end, employees will win.