Instant gratification underpins successful fintech – the rise of early wage access providers

The other night I was out to dinner with a few friends, and I got into a conversation about our obsession with convenience, of which we are all guilty of. The thing is, we shouldn’t really be embarrassed about our drive for immediate satisfaction. After all, it simply represents our desire to protect and retain the one thing we all know we can’t get more of. Time.

The irony of our quest for convenience, is that we’ve lost the ability to take pleasure from the simple act of ‘waiting’ for something. Good old delayed gratification. To take the irony even further, many of us increasingly seek out ‘slow’ experiences that actively counter our convenience-seeking-behaviour. Time is the ultimate gift and resource, and we all intrinsically understand its value.

As our life speeds up it should come as no surprise that many of us are fed up waiting for our pay-check. We want it now, and there are plenty of fintechs in the Early Wage Access (EWA) space that are ready to sell it to us in advance, for a price.

Employers are flocking to these products, citing increased employee retention and financial wellbeing as benefits. Companies like PayActiv, Salary Finance, Even, Daily Pay by ADP are just some of the more well-known players in this space, however fast-follow models are appearing in just about every country.

EWA sounds great in principle – heck, who doesn’t want money sooner? But is it a Band-Aid solution to cash flow management, the financial equivalent of an Oxycontin pill?

Maybe, maybe not.

A Harvard Kennedy School working paper into the subject goes someway to providing some preliminary answers to this question. Their research seems to back up the claims by EWA providers that these solutions are far more inclusive and lower cost than more traditional means of payday lending. In other words, if people are going to take the drug, we may as well help them take it safely. To quote the paper:

“The principal reason we found to explain both the lower cost and the greater inclusiveness of these products is the power of the so-called “salary link”—the ability of the FinTech provider to access an employee’s salary directly to ensure repayment of advances or loans. The factors associated with the salary link lead to markedly superior loan/advance performance (with defaults currently at <20% of the rate predicted by credit scoring) which is passed through in the form of lower costs to a larger proportion of the employee population than is possible with market alternatives.”

Could EWAs ever backfire?

What if a company that traditionally paid its employees weekly or fortnightly suddenly moved to monthly, and also simultaneously introduced a pay-per-use EWA tool? Is that really making employees better off? A similar type of behaviour has been witnessed in big corporates when it comes to supply chain financing. The implementation of longer payment terms to suppliers has coincided rather interestingly with an increase in the number of suppliers taking up supply chain finance arrangements. It’s a clever way of positioning your big-bad-corporate to extract a discount from your small-mum-and-dad suppliers. Win-win can literally mean the capital ‘W’ is in effect, and we should all be on guard to this type of wolf in sheep’s clothing behaviour, even from our own employers.

While consumer protections in most countries are unlikely to allow similar situations to occur for the modern day worker, it does pay to think about where all this ends up (excuse the pun).

One thing is for sure though. We want everything now, and we will pay for it. Building a business premised on our desire for convenience is as close to a sure bet as anything, and is increasingly the bedrock of many a fintech strategy.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no commercial relationship with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.