Payroll FinTechs: Financial Wellness for Employees
Updated: Dec 4, 2020
FinTechs, in their quest to go after underserved segments, are going after a significant niche customer base: The Salaried Employees. 🗓
Salaried employees, especially the ones with poor credit history and in need of quick-cash have relied upon the payday lenders for decades. With new regulatory interventions and consumer awareness, the payday lending industry is on its wane. A new breed of fintech startups has sprung across the world to fill this #whitespace.
4 broad categories can be observed in this segment:
⏱ Salary On-demand - This is a fast emerging category. Fintechs in this category are partnering with corporates, HR software providers and payroll systems to enable flexible access to earned wages
💼 Salary Advance - Fintechs in this category provide short-term credit to employees based on their salary and avoid the exorbitant rates charged by erstwhile payday lenders
📆 Early Direct Deposit - A prominent feature largely provided by new-age banks in the US and the UK, enables account holders to receive paychecks up to 2 days in advance from standard payday.
🌐 Crypto Payroll - This is the newest category which enables firms to make wage payments through multiple crypto-currencies.
With financial wellness gaining precedence across organisations, these fintechs are well-poised to serve a generation of a financially literate & tech-savvy workforce.
The USA Timeline 🇺🇸
On-demand paycheck providers were the early innovators. FlexWage one of the first movers, developed & patented on-demand pay in 2010. Its clients are some of the leading QSR chains in the country.
Another such pioneer, PayActiv counts 3 million workers across 1000+ employers as its customers. During Covid-19, it waived fees to provide liquidity to frontline workers.
Early direct deposit was introduced by #neobanks to help users manage the month-end cash crunch & incentivise them to use the neo-banks as their primary account. Banks like Chime & Varo Bank have seen a rapid uptake in recent years.
Next came the Salary Advance providers who wrapped their services in consumer-friendly language, by using the term “advance” rather than “loan”; requesting “tips” instead of charging “interest”, & talking of advances being “restored,” not “repaid.”
Some of the salary advance fintechs have faced lawsuits for alleged unfair practices such as triggering excessive overdraft fees or asking for heavy tips, which users must opt-out of.
Now is a time for #payrollfintechs to deliver on their customer-centric propositions & truly educate their customers about financial wellness.
The UK Timeline 🇬🇧
This geography has seen a lot of M&A activity recently.
Salary Advance provider Neyber was acquired by Salary Finance in March 2020. Combining capabilities of the first movers in the space, Salary Finance now serves over 500 clients reaching 3M employees.
Earnings-on-demand platform Hastee acquired Spanish counterpart Typs in November, to expand to the wider European market. Australia based Earnd launching in the UK was also as a result of its acquisition by fintech unicorn Greensill in 2020.
Crypto payroll was brought to the market in 2017 by American fintech Bitwage. It counts Facebook, Google & Uber as some of its clients.
Early Direct Deposits was introduced by #neobanks like Monzo in 2019 & Revolut, just this week, in 2020. British neo-banks are certainly stepping up their game!
While #payroll fintechs are zooming ahead, the payday lending scene in the UK has been fairly gloomy. Past few years have seen the likes of Wonga, QuickQuid & The Money Shop shut operations due to regulatory interventions in the segment.
These events have opened up a lot of demand from underserved employees. Given the situation, payroll fintechs have a big opportunity pool right in front of them. Will they dive in?