Get your paycheck, before payday

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The service has been running in test mode for a year. Mr Palaniappan declined to say how many people used the service, but said they were employees of 100 companies, including large retailers. The funders of the company are Ribbit Capital and Felicis Ventures.

As with many other financial apps, you need to be comfortable sharing your bank account information, including your username and password, to register and use Activehours. Lauren Saunders, chief lawyer at the National Consumer Law Center, has warned consumers against disclosing such personal information, especially with a start-up. “I wouldn’t,” she said.

Mr. Palaniappan said that Activehours has “bank grade” security and uses Intuit, like other financial applications, to link to users’ bank accounts; access is “read-only” to verify direct deposits and the user’s payment cycle schedule. Fund transfers are made through the “automated clearing house” system used by banks and businesses, he said.

Here are some questions about payday advance services:

Will giving workers early access to their wages, even with low fees, encourage them to go over budget?

That remains to be seen, Ms Tescher said. For someone whose expenses exceed their income, having on-demand access to their paycheck could cause problems if they “get in the hole” for other expenses when their paycheck is deposited. she noted. “But if it’s just a timing issue,” she said, “then that could be really helpful.”

Is Activehours a bank?

No, said Mr. Palaniappan. The transaction with Activehours is an “asset purchase,” he said. Hourly employees accumulate earnings owed to them by their employer, and they attribute this “acknowledgment of debt” to Activehours.

Do other financial services allow consumers to choose their fees?

Other financial companies promoting optional fees include GoBank, a mobile banking service (not a payday advance service) that lets you choose your monthly service fees; you can’t pay anything if you want. “It’s hard to argue with something that’s free,” Ms. Saunders said. Nonetheless, she said, consumers should always be wary when using any type of payday advance service: “At the end of the day, your paycheck will be smaller.” This could mean that you will run out of money for regular expenses and end up asking for repeated advances. This could make you vulnerable to charges, if the service eventually starts charging for them, she said. Payday lenders, she noted, sometimes offer the first loan for free.


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