Can benefits brokers improve the household finances of financially strapped workers by making them more careful shoppers?
That’s the idea behind Purchasing Power, the Atlanta-based provider of the country’s largest employee purchasing platform.
Launched in 2001 as a workplace benefit—long before the benefits industry codified “non-traditional” as a category of voluntary benefits—Purchasing Power was conceived as a way to market personal computers to retail consumers at work.
Today, the company offers more than just laptops: Employees of the roughly 300 companies, government agencies and trade associations that offer Purchasing Power’s platform as a voluntary benefit have access to more than 50,000 consumer goods and services. That includes everything from handbags and treadmills to vacation packages and tires.
The platform does not, however, include discounts, which differentiates it from a growing number of platforms pitching wares that are less expensive than Costco or Amazon.
“Discount purchasing platforms serve a very different need than our core offering,” says Elizabeth Halkos, chief operating office of Purchasing Power, which booked $328 million in revenue in 2015, and over $2 billion since its inception, most of which was sold through benefits brokers and consultants.
Instead of using coupons and discounts on potentially unneeded items to lure workers, Halkos says, Purchasing Power is a valuable alternative to regular credit markets.
Employees pay for platform purchases through payroll deductions over a six to 12-month schedule, explains Halkos. Workers are never charged interest, fees or penalties on their purchases.
“The idea is to address financial stress by providing a reliable way to get people what their families need without creating more debt,” she says. “That’s the problem we are solving for the end user.”
Debt, especially credit card debt, is a way of life for most Americans. It also drives an increasingly financially stressed workplace, according to benefits analysts and independent economists.
In the third quarter of 2016, U.S. consumers held a collective $747 billion in credit card debt, according to the Federal Reserve. The average balance was $16,000.
That amounts to an average of nearly $1,300 in annual interest payments — more than most Americans have in savings accounts. According to 2016 data from GoBanking, 69 percent of the country has less than $1,000 in savings; one in three have no money set aside. Another survey from Bankrate showed that only four in 10 Americans are able to pay, with cash, for unexpected expenses like car trouble or home repairs.
“The reality is that most people find themselves relying on credit cards to pay for basic life expenses,” says Halkos.
That means more debt for those who can access traditional credit markets. Countless others are forced to take out payday and other predatory loans at usury-level interest rates, he adds.
A healthier alternative for much of the workforce is accessing necessary goods without carrying interest — an holistic option that Halkos says can be part of any comprehensive workplace financial wellness strategy.
To be clear, Purchasing Power’s platform features its share of creature comforts — video games are among the product listings. But much of the inventory also includes household essentials like appliances, furniture and car seats — products that are necessary yet expensive.
“It’s a convenience for workers, but more than that, it helps them safely budget and finance expenses,” says Halkos.
In addition to its platform, Purchasing Power provides employers with a suite of financial wellness tools, which include access to credit scores, budgeting tools and financial coaching.
Purchasing Power makes money through a small goods markup, which allows the firm to extend free credit.
Most of the firm’s clients have at least 1,000 employees; smaller firms are less likely to have compatible payroll systems. But rapid technological innovations are changing that, and Halkos says she expects more small and midsized employers to use Purchasing Power’s platform in the near future.
Brokers are paid a flat commission based on the cash receipts from employee purchases. Teri Weber, a partner and head of the employee benefits division at Boston-based Spring Consulting Group, says the platform has mostly been positively received.
“We’ve had no complaints from employees about the plan,” says Weber. “Sometimes, there is confusion when employees find an item at a less expensive price through retail or online promotions. Education about the program in advance is the best way to minimize confusion.”
As a marketing vehicle, Weber says, Purchasing Power’s platform is most suitable for employees in low- to mid-income brackets, as well as younger workers whose credit history may not be sufficient enough to make larger purchases.
“Some organizations are seeking discounted purchase plans, which are popular among diverse employer groups,” she says. “Others are looking for a way to provide a mechanism for employees to purchase items through payroll deduction.”
The employees who do leverage platforms like this tend to be more attentive consumers, says Weber.
“Employees who use the program monitor their plan carefully and remain in touch with us more frequently than those with other voluntary plans,” she says. “That gives us more touch points with employees. For most plans, we do quarterly postcards with specific promotions to educate on the program and ensure employees see the value. Obviously, fourth quarter is a popular time for purchases, but back-to-school is also typically a high volume time for purchase programs.”