The last year has seen the growth of a fintech product known as salary finance, allowing employees to dip into their wages on demand and get access to their salary before their monthly pay date.
Originating in the US, it has quickly emerged in the UK and startups such as Wagestream and Hastee are championing this space, with the latter offering a debit card which allows you to use your wages on tap.
The salary finance industry came to life following a huge overhaul of short-term lending in the UK. The rise of compensation claims and strict regulation has resulted in some of the UK’s most well-known and traditional lenders going into administration in the last 2 years. The most famous companies that closed shop include Wonga, The Money Shop and QuickQuid, together owning more than £700 million in compensation to overcharged customers.
Payday lending was hugely popular amongst working class Britain, specifically those working in hospitals, armed forces and supermarkets who were looking for an advance before their next pay date. However, many were subject to paying high rates, often above 1,000% APR and getting caught in a cycle of debt if they could not repay on time.
However, salary finance is one of the many payday alternatives that is filling the gap of 3 million Britons looking for short-term funds every year.
Using Wagestream, the technology is linked to an employer’s HR system and allows staff to draw down 40% of any of their monthly earnings. Employers can change the percentage that their customer has access to, with 40% being the sweet spot to avoid an over-dependency. Customers are charged just £1.75 for every draw down, with the employer charged £1 per employee, per month.
Hastee launched the UK’s first Earnings on Demand solution via an app in August 2017 giving workers the ability to withdraw up to 50% percent of their daily salary to their nominated bank account, on the day they earn it.
The role of salary finance is another addition to the surge of employee benefits that businesses are expected to offer to their staff members. Offering health insurance or childcare vouchers as part of ongoing employment was always seen as a good incentive, but today, employee benefits are a crucial part of the HR and employment landscape. To maximise loyalty and drive motivation, employers are expected to provide more than just a salary, but also employee discount portals, health benefits and financial support.
Salary finance has already seen early adoption in areas such as the NHS and large catering businesses, but it is something that could gain real popularity in working Britain.
Elsewhere, there are fintech providers using technology to drive better terms and borrowing facilities for those who are employed. Peer-to-peer lenders such as The Money Platform and Fund Ourselves allow customers to borrow small amounts up to £500 or £1,000 which is powered by other individuals who are looking for a return on investment. These peer-to-peer platforms connect borrowers with investors and the portal uses diversification to maximise returns of around 10% per annum, or more.