FIN 480 Week 4 Digital Payments, Lending and Wealth Management Example

Instant Payouts, a Pay-Later Offer and Round-Up Savings: ShiftPay Chooses Which Digital Payment, Lending and Wealth Features Help Hourly Workers and Which Would Hurt Them

[Student Name]

University of Phoenix

FIN/480: FinTech and DeFi

Week 4 Assignment

[Instructor Name]

[Date]

ShiftPay, its users and all figures are composites written for a model paper; payment systems, product features and research findings come from the sources listed and are stated generally.

ShiftPay, the composite Texas earned-wage startup, has about 1.1 million active users and a product team that can build two major features this year. Three proposals compete: instant payouts on a real-time payment rail at a lower cost than its card-based instant option, a buy now, pay later partnership offered by a major provider and an automatic savings feature with an optional investment account. Every feature would bring revenue or engagement, but the question for a company serving workers with thin margins is which features leave those workers better off. This paper evaluates each.

How Money Moves

Three rails carry most U.S. consumer payments. Card networks authorize purchases instantly, but merchants are paid a day or two later, and merchants pay interchange and network fees. The ACH network moves payroll and bill payments in batches, cheaply, with same-day settlement available but no weekend operation. Real-time payment rails, The Clearing House's network launched in 2017 and the Federal Reserve's FedNow service launched in 2023, settle payments in seconds at any hour, every day, between participating banks.

Choosing a Rail for Instant Payouts

ShiftPay's current instant option pushes money to a worker's debit card through the card network, costing ShiftPay about 50 cents per transfer and earning a $2.99 fee. If the worker's bank accepts real-time payments, ShiftPay's sponsor bank could send funds on that rail for a few cents. ShiftPay proposed to route instant payouts on real-time rails where available and cut the fee to $1.49, keeping card push as a fallback. The change would lower workers' costs, keep revenue per transfer above cost and reduce dependence on card network pricing.

The Buy Now, Pay Later Offer

A pay-later provider offered to integrate its service into the ShiftPay card, letting workers split purchases above $100 into four payments over six weeks with no interest, paying ShiftPay a share of merchant fees. Providers earn mainly from merchants, who pay several percent of the sale, and partly from late fees. Di Maggio et al. (2022) found that access to buy now, pay later increased consumers' total spending, not just the timing of it, an effect that persisted beyond the first purchase. For workers already using wage advances to bridge gaps, adding another way to spend ahead of income could deepen the shortfall each payday. ShiftPay declined the offer.

Online Lending and Banks

Digital lenders compete with banks on speed and convenience. Fuster et al. (2019) found that FinTech mortgage lenders processed applications about 20 percent faster than other lenders without higher default rates, and responded more elastically to changes in demand. ShiftPay's installment loans from Week 2 follow that pattern: decisions in minutes and repayment through payroll. Its advantage is data, not cheaper capital, since its sponsor bank funds loans at bank costs.

Why Savings Come First

Many ShiftPay users have no emergency savings, which is why they use wage advances. A feature that builds savings could reduce how often they need advances, a goal the company and its employer clients share. The proposed feature lets workers send a set amount or a percentage of each paycheck, or round up card purchases, into a savings account at the sponsor bank, with a target such as $500.

The Robo-Advised Option

For workers who reach their savings target, an optional investment account would place additional money in a diversified portfolio of low-cost index funds chosen by an algorithm based on goals and risk answers. D'Acunto et al. (2019) studied a robo-advisor in India and found that it improved diversification and performance for investors who had been poorly diversified, though it also led some to trade more. For ShiftPay users, investing makes sense only after an emergency cushion exists, so the investment option opens only when the savings target is met.

Revenue and Costs

The savings feature earns little directly: ShiftPay receives a small share of the interest margin the sponsor bank earns on balances. Its value lies in retention, since employers renew when workers use the service positively, and in reduced advance losses as users become more stable. The investment option would charge 0.25 percent a year, through a registered partner adviser.

What Users Gain

A worker who saves $25 a week reaches a $500 cushion in five months and can cover a typical car repair without an advance. A worker who uses instant payouts twice a month saves about $36 a year at the lower fee.

Regulatory Notes

Payments on real-time rails are irrevocable, so fraud controls must be strong before funds leave. Buy now, pay later products have faced increasing regulatory attention on disclosures and dispute rights. The investment option must be offered through a registered investment adviser.

Testing Before Full Launch

Each feature will be tested with a sample of users before a full release. For instant payouts on real-time rails, ShiftPay will measure the share of workers whose banks accept such payments, transfer failure rates and fraud attempts. For savings, it will measure how many users set a target, how many reach $500 within six months and whether those users request fewer advances than similar users without savings. If savers request at least a fifth fewer advances, the feature will be promoted to every employer client as a retention tool. Measuring outcomes for users, not only adoption, keeps the product decisions honest.

Recommendation

ShiftPay should build two features this year: instant payouts on real-time rails at a lower fee and the automatic savings feature, with the robo-advised option added once savings targets are met. It should decline the buy now, pay later partnership because evidence suggests it would increase spending among users already short of cash.

Conclusion

Real-time rails cut the cost of instant pay, automated savings address the reason workers need advances and robo-advice serves workers once they have a cushion. Buy now, pay later would add revenue but likely leave users worse off. Choosing features by their effect on users, not only by revenue, fits a company whose business depends on workers' trust.

References

D'Acunto, F., Prabhala, N., & Rossi, A. G. (2019). The promises and pitfalls of robo-advising. The Review of Financial Studies, 32(5), 1983-2020. https://doi.org/10.1093/rfs/hhz014

Di Maggio, M., Katz, J., & Williams, E. (2022). Buy now, pay later (NBER Working Paper No. 30508). National Bureau of Economic Research. https://doi.org/10.3386/w30508

Fuster, A., Plosser, M., Schnabl, P., & Vickery, J. (2019). The role of technology in mortgage lending. The Review of Financial Studies, 32(5), 1854-1899. https://doi.org/10.1093/rfs/hhz018