Over half of salaried workers in emerging markets live paycheck to paycheck, and the majority of these struggle to arrange funds in cases of emergency. This longstanding situation is being further worsened due to the recent sharp rise in the cost of basic necessities, which has eroded consumer purchasing power. Since formal credit penetration is low, the primary source of emergency borrowing in many emerging markets is family and friends, but this is not ideal as it could impact relationships. Earned Wage Access (EWA) platforms provide an alternative source of finance at an affordable cost; these platforms partner with employers to allow their workers to access their earned wages before the scheduled payroll dates. EWA providers enjoy high recovery rates due to their relationships with borrowers’ employers.
In this note, we discuss four reasons why Earned Wage Access platforms should thrive and highlight five emerging market fintechs active in this segment.
Four reasons why EM Earned Wage Access platforms have strong growth potential
1. Consumer purchasing power is being squeezed, raising demand for EWA platforms. Rising inflation, including food and other commodities, is severely reducing consumers’ cashflows. This is most challenging for the poorest EM consumers as basic necessities account for a major proportion of household expenses. Under these conditions, it is more likely that workers would need access to temporary credit facilities before pay day to enable them to make essential purchases.
2. Borrowing from friends and family is likely to be replaced. Formal credit penetration in EMs is much lower than in developed markets, but this doesn’t mean that financing needs are low. Instead, these needs are often being met by asking friends and family for help. However, we think that as convenient and cheaper financing options become available (like EWAs), people are likely to shift away from borrowing from friends and family as it could impact relationships. Our consumer survey also indicates that fintechs are likely to gain market share over the next 3 years from informal providers as well as serving the unbanked.
3. Superior risk management profile compared to other lending platforms. Lending products generate one of the highest ARPUs in the fintech universe, but these are also subject to credit risk costs in macroeconomic downturn. The recent experience of BNPL platforms indicates the importance of risk management for digital lenders. Earned Wage Access works on a B2B2C model, whereby platforms partner with employers to provide wage access loans to their employees. The amount lent out to employees is typically less than the monthly wage and is recovered from employers directly on the next pay day. Therefore it doesn’t rely on consumers’ capacity/willingness to pay back.
4. Strong cross-selling opportunities. After building sizeable networks of corporates and their employees, earned wage access platforms can cross-sell a range of additional products to both parties. This can include payroll financing and invoice factoring to companies, and BNPL and non-credit financial products (such as insurance) to workers.
5 Earned Wage Access platforms to watch
Abhi is an Earned Wage Access platform in Pakistan launched in 2021 and has become popular in a short time. The company partners with corporates to enable their employees access Abhi’s products. Recently, the company has also expanded its services to employees of non-partner corporates who are customers of selected banks. Abhi does not charge corporates, but only takes a nominal fixed fee from end-users.
Abhi raised US$17mn in April 2022 at a valuation of US$90mn, investors in the company include Global Ventures, VEF and VentureSouq, among others. The company aims to expand its product suite for users, like offering insurance, e-commerce and BNPL products.
Flexxpay, a platform letting employees access their earned wages instantly, was founded in 2018 in United Arab Emirates (UAE). FlexxPay charges a fixed fee from employees for using its products, and does not charge anything to the employer. The company services corporates in various industries including telecoms, retails, logistics, real state, and financial services. FlexxPay has raised US$4.5mn to date, with its last funding round closed on Oct 1st 2021. The company has 11 investors in total, with Wamda Capital as lead investor. The company has expanded into Saudi Arabia and has also announced plans to launch in Egypt and Bahrain.
Minu is a Mexico-based on-demand salary platform. The company offers pre-designed packages, which include salary-on-demand, savings, loans and insurance, which employers can purchase for their employees. The lowest package starts at US$35 per annum per employee, plus some additional charges depending on product usage. Minu has raised US$20mn so far from investors like Village Global (a VC firm by Bill Gates, Jeff Bezos, and Mark Zuckerberg), VEF, XYZ Ventures, Next Billion Ventures and QED.
Refyne, launched in 2020, is one of the top salary on-demand platforms in India. Refyne partners with corporates to provide salary on-demand and other products to workers for a small transaction fee that is charged from employees. In January 2022, Refyne had 150 partner firms with over 700k employees; it aims to serve 3 million users by the end of the year. Refyne’s platform supports 12 languages, enabling it to scale in various parts of the country. The company raised US$82mn in Series B funding round in January 2022; the valuation was not disclosed, but was over 6x compared to its Series A in June 2021, where the company raised US$16mn.
Wagely, launched in 2020, is a platform enabling Indonesian employees to access already earned wages instantly. As with most EWA platforms, only the employees of partner organisations can enjoy the benefit of Wagely products. The company does not charge the employers; however, employees must pay a membership fee. Wagely has raised US$13.9mn till date. The key investors in the company are Integra Partners and East Ventures.