Earned Wage Access Concept to Normalize Advanced Salary

Some people say money can solve all problems. Ironically this is true. Quote from the Health Living Index study by AIA, money is the main source of stress in Indonesia. Household finances cause Indonesians more stress than work, relationships, or even their physical health.

Another global survey conducted by PwC in 2019 found that 67% of workers reported struggling with financial stress, meaning more than two-thirds of the working population are prone to migraines, depression and anxiety. Many studies highlight the effects of employee financial stress on business performance.

According to PwC, workers spend three or more hours per week focusing on financial matters rather than their work. Of the employees who reported financial stress, 12% lost their jobs because of the problem, and 31% felt their productivity was affected. One in three workers admit to being less productive at work because of financial stress.

PwC estimates that for a company with 10,000 workers, all these problems related to financial stress could cost up to $3.3 million in one year.

In Indonesia, the lower to middle class workers still dominate the working class. The World Bank recorded out of a total of 85 million income recipients which include employees, casual workers, and self-employed, only 13 million workers or 15% have enough income to support a middle class life with four family members.

Of all that group, only 3.5 million or 4% of workers with middle-class income while enjoying full social benefits and having permanent employee status.

This is yet to talk about freelancers which total has reached 33.34 million, up 26% YOY as of August 2020 according to BPS data. Freelancers in Indonesia are in the lowest position of the work protection pyramid, even losing to blue-collar workers protected by Law No. 13 of 2003.

Freelancers in this country hardly have guarantees related to labor, not even job security, income or social protection. Their social security is not listed as part of the employer's required entitlement, which means they have to pay for other products for protection.

This financial health issue does not only occur in Indonesia, but also in various other parts of the world. No single tool or approach can meet all employees' financial needs. Employers should consider providing programs and tools that better equip employees to deal with financial emergencies.

While many employers provide employee loans (such as cash), they are actually only locking in valuable cash flow and yet to be able to provide employees with flexibility and instant solutions. For example, lower-class workers struggling with unstable incomes or expenses for a variety of reasons, including unexpected or increased bills and fluctuating working hours.

For employers, earned wage access (EWA) programs allow employees to access part of their paycheck early, helping them balance payday time with their expected or unexpected expenses to avoid late fees or penalties.

The United States became the first country to take a technological approach to solving the wage issue through technology. The pioneer company is Payactiv, a pioneer of earned wage access products, which was founded in 2012.

Some people interpret EWA for early wage access. There are also those who use other terms such as, on-demand pay, instant pay, daily pay benefit, or earned income access. But all the names refer to solutions covering the same basic thing: help employees access the wages they've earned before payday arrives.

The truth is, Payactiv created the term earned wage access carefully because they are very aware that every word in the term is specific and full of meaning. Payactive's founder and CEO, Safwan Shah explained, the word "earned wage" is a wage that is earned, not "early" which connotes impatience.

“It's wages, not income because income can be in the form of commissions or something; and the word access, not referring to a down payment that implies someone is helping you. The reasons for each word are very specific,” Shah said as quoted from an interview with Forbes.

He said, the main point of EWA is when the workers payday is fully controlled by the employer. This is a technological decision. This initial idea became the forerunner of Payactiv about 10 years ago.

“I said if technology drives the payment timing, then we can create technologies and products where people can access their money when they earned it. I have a very strong belief that, for this service to be delivered properly, employers must be part of the solution.”

Global EWA which already achieve the unicor status

(Collected from several sources)

Indonesian players

The acceptance of EWA concept in developed countries has inspired fintech companies from developing countries. In fact, it is common in developing countries, where low-wage workers often turn to fast loans with high interest rates to keep their sudden expenses in check before payday arrives.

The pandemic creates momentum for them to start implementing the concept in Indonesia. Since the pandemic, at least four services have been operating, including GajiGesa, Wagely, Gigacover, and GajiKoin carried by KoinWorks.

Gigacover Indonesia's Country Head, Cobysot Avego explained, the momentum of EWA's platform in Indonesia was triggered by the pandemic situation which has affected many aspects of people's lives, from working to managing monthly finances, makes it necessary for them to be more careful in managing cashflow and consider the possibility of an emergency need that can occur at any time.

"This situation is a momentum for Gigacover to help independent workers and communities of gig economy players yet to be served in the country, so that they can have access to the same benefits as part-time workers," said Cobysot when contacted by DailySocial.

Gigacover not only provides EWA solutions, it also provides financial financial products and services for freelancers thanks to collaborations with various conventional financial services industries, such as insurance companies.

GajiGesa's Co-Founder Vidit Agrawal said the platform presence is quite appropriate because many entrepreneurs struggled to provide employee benefits to their employees during the pandemic. "GajiGesa partners with employers to help them provide financial, health and educational benefits, also to build self-reliance and financial resilience for employees," he said.

Agrawal continued, “We have seen employee benefits and EWA acceptance across all verticals including traditional businesses, factories and technology companies.”

Currently, GajiGesa's solution includes not only EWA, but also financial products (top up credit, e-wallet transfers, and bill payments), micro health insurance, and educational products that soon to be released. Also, a special application for GajiTim's employers that contains various employee management and HRIS features.

CoinSalary is the only EWA platform that stands as an additional service from KoinWorks for companies. KoinGaji was launched last year.

KoinWorks' Co-Founder and CEO, Benedicto Haryono said the EWA solution is an attractive benefit to meet the needs of employees at any time, especially sudden needs such as medical, and so on. Therefore, it makes various startups interested in trying to provide this service.

“Although this will be a competitive market, KoinWorks set this solution as a bundle for MSME players. Our strategy through the Super App is to provide a more complete package with a unique value proposition, therefore, it can holistically meet the financial needs of MSMEs," said Ben as Benedicto's nickname.

All three monetize the service by adding a service fee for each employee from company partners using its technology and services. They “bail” the salary that was disbursed earlier, then billed it to the company partners at the end of the month.

With Gigacover, for example, Cobysot explained the application process where employees can download the Gigacover application and fill out a registration form including to explain information about the company, therefore, it can carry out further communication regarding their needs.

Furthermore, employees can apply for salary disbursement to be processed by Gigacover -the funds will be taken from Gigacover Indonesia- and the company will return the funds to Gigacover on the payday.

“For each of transaction, we apply an affordable administration fee ranging from Rp. 20,000 to Rp. 40,000. Our business model is quite unique B2B2W (Business to Business to Workers), where the partnership we have is with the company to provide welfare for its employees," he said.

Meanwhile, KoinGaji sourced its funds from KoinP2P, the KoinWorks fintech lending company. However, this product does not take interest, but a service fee of 1%-2% of the total wages taken.

"In addition, we also offer KoinGaji as an additional feature for our clients and partners who have used our other product facilities before, therefore, we can monetize from several of our products at once," Ben added.

(collected from several sources)

EWA startup optimism

Although these players are still infant, they offer spirit that is quite ambitious, by wanting to reduce worker dependence with payday loans that often frustrating. Education plays an important role in manifesting this idea.

Due to such business model, some consider the EWA platform to be like a fintech lending company. Shah flatly rejected this assumption. He said, since Payactiv created Earned Wage Access in 2012, Payactiv's competitors have increased and the industry has become more competitive.

He also tried to meet the Consumer Financial Protection Bureau (CFPB) dozens of times to discuss this matter. Eventually, in early 2021, EWA Payactiv products became the first products to be approved by the CFPB. "They recognized EWA was not a "credit" and were exempt from federal loan laws," Shah said.

However, he was never against products that help people meet their needs before payday. Payday loans are only the initial phase of the financial education process because payday loan companies don't bother involving employers, they just approach their employees.

"Therefore, I don't blame them at all. I'm not criticizing them. I'm not judging of the history of payday loans. I put a product out there, and I said “If you still want to use a payday loan, I can't stop you.” It's like you want to drive a car that goes 9 miles, it's up to you, but there are cars that will go 50 miles to the gallon."

He continued, there are people who use payday loans, but no one has ever asked why. He said, this happened because there was a mismatch between the bi-weekly wage, and the several days in between where bills and other expenses had to be paid.

Bills and expenses don't wait for payday. This misalignment creates cash flow shortfalls, which hourly workers have historically filled through expensive short-term forms of credit such as payday loans, installment loans, car ownership loans, mortgage loans, overdraft fees, and late fees.

“Earned wage access corrects this misalignment, while increasing worker liquidity, reducing demand for high-cost credit.”

In Indonesia, AFPI's Daily Chair, Kuseryansyah explained, the regulation that actually accommodates EWA players is included in digital financial innovation and digital financial innovation support services, referring to POJK 13 of 2018 concerning Digital Financial Innovation.

“The platform must be registered with the OJK as an IKD. Or else, it can be reported as an illegal fintech service because it is not registered, listed, and licensed at the OJK," he said.

Of all the current EWA players in Indonesia, only KoinGaji products have been registered as IKD in the aggregator cluster under PT Sejahtera Lunaria Annua. Others claimed to be preparing the submission to the OJK.

Amidst the huge opportunities awaited, Ben continued that he believes the growth of EWA players in Indonesia will be slower than that the overseas players. In fact, there's still negative stigma of illegal loans attached in Indonesia's people. Therefore, EWA players need to carry out more massive education. KoinWorks needs to first introduce KoinGaji's vision and mission.

"Moreover, it is expected to provide awareness that this is a necessary product and a helpful one, it can even prevent employees from being entangled in illegal loan interest which can ultimately affect the employee's performance."

However, both Agrawal and Cobysot are prepared with a large population in Indonesia to deepen EWA adoption.

“We are very excited about the EWA's growth in Indonesia. Employers are starting to realize the benefits of giving employees their paycheck before their pay date and are actively partnering with us to use our technology for the same purpose. GajiGesa has seen exponential growth this year and expects the same for the rest of the year as well,” Agrawal said.

Cobysot added, “If we look at the COVID-19 pandemic that encourages remote working and the trend of the Indonesian gig economy industry which is still very green and not well regulated, we believe that the services provided by EWA startups will continue to develop in the future, as the needs will always  be there. To provide a picture, the use of Gigacover products has increased by 10 times throughout 2020 among the Indonesian independent worker community.”

-Original article is in Indonesian, translated by Kristin Siagian*header photo: Depositphotos.com