"Earned Wage Access" Concept Normalizes Advance Payment of Salaries

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

Other global surveys conducted PwC in 2019 found that 67% of workers reported struggling with financial stress, meaning that 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 itself, lower middle class workers still dominate the working class. World Bank noted that from a total of 85 million income recipients including employees, casual workers and self-employed people, only 13 million workers or 15% who has enough income to support a middle class life with a family of four.

Of 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 doesn't talk about freelance workers, whose number reached 33,34 million, up 26% YOY as of August 2020 according to BPS data. Casual workers in Indonesia are at the lowest position of the job protection pyramid, even less than blue collar workers who are protected by Law No. 13 of 2003.

Freelancers here have almost no labor-related security, be it job security, income or social protection. Their social security is not required to be included as part of the entitlements that employers must provide, meaning they have to pay for the product to protect themselves.

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

While many employers provide employee loans (such as cash), they are actually only locking in valuable cash flow and are not yet able to provide employees with flexibility and instant solutions. For example, lower-class workers who have to struggle with unstable incomes or expenses for a variety of reasons, including unexpected or increased bills and fluctuating working hours.

For employers, programs earned wage access (EWA) allowing employees to access a portion of their pay early can help them align the timing of their earnings with expected or unexpected expenses to avoid late fees or penalties.

The United States is the first country to take a technological approach to solving wage issues through technology. The pioneer company is Payactiv, a product pioneer earned wage access, which has been launched since 2012.

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

But in fact, Payactiv created the term earned wage access it with great care because they are very aware that every word in the term is full of specific meaning. Payactive Founder and CEO Safwan Shah explained, saying “earned wage” is the wages earned, so it is not “early” obtained at the beginning connotes impatience.

"That's wages (wage), not income because income can be in the form of commissions or something similar; and the word access (access), not an advance that implies as if someone is doing you a favor. "The reasons for each word are very specific," said Shah, quoting from a joint interview Forbes.

According to him, the main key offered by EWA is that when workers are paid is completely controlled by the employer. This is a technology decision. This initial idea became the forerunner of Payactiv about 10 years ago.

“I say if technology drives payment times, then we can create technology and products where people can access their money when they get it. I have a very strong belief that, for these services to be delivered properly, employers must be part of the solution.”

A global EWA player that has become a unicorn

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Players in Indonesia

The acceptance of the EWA concept in developed countries has inspired fintech companies from developing countries to also attend. Because, generally in developing countries, where low-wage workers often turn to fast loans with high interest to cover sudden expenses before payday arrives.

The momentum of the pandemic opened up an opportunity for them to bring this concept to Indonesia. Since the pandemic, at least four services have been operating, namely GajiGesa, wagely, Gigacover, and GajiKoin carried by KoinWorks.

Gigacover Indonesia Country Head Cobysot Avego explained that the momentum of the presence of the EWA platform in Indonesia was triggered by none other than the pandemic situation which has affected various aspects of people's lives, from work to managing monthly finances. This makes them need to be more careful in managing cash flow and consider the possibility of emergency needs that could occur at any time.

“This situation is a moment for Gigacover "to help independent workers and the underserved gig economy community in the country, so that they can have access to the same benefits as part-time workers," said Cobysot when contacted DailySocial.

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

Co-Founder GajiGesa Vidit Agrawal presence GajiGesa quite appropriate because during the pandemic many employers are struggling to provide employee benefits to their employees. “GajiGesa partnering with employers to help them provide financial, health and educational benefits so as to build self-dependence and financial resilience in employees," he said.

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

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

CoinSalary being the only EWA platform that stands as one of KoinWorks' additional services for companies. KoinGaji was also released last year.

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

“Even though this will be market competitive, KoinWorks sees this solution as one of the services in a package that can be provided to customers entrepreneur MSMEs. Our strategy is through Super App is to provide a more complete package with value proposition that unique so that we can meet the financial needs of MSMEs more holistically," explained Ben, Benedicto's nickname.

All three take the monetization method by taking a service fee for each employee from company partners who utilize their technology and services. They "bail out"The salary that is disbursed early is then billed to the company partner at the end of the month.

At Gigacover, for example, Cobysot explained that for the application process, employees can download the Gigacover application and fill out the registration form, including explaining information about the company, so that they can communicate further regarding their needs.

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

"For each transaction, we apply an affordable administration fee ranging from IDR 20 thousand to IDR 40 thousand. Our business model is quite unique B2B2W (Business to Business to Workers), where the partnership we have is with companies to provide welfare for their employees," he said.

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

"Apart from that, we also offer KoinGaji as an additional feature client and businesses "We have used our other product facilities before, so we can get monetization from several of our products at once," added Ben.

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EWA startup optimism

Even though these players are only young, the spirit they offer is quite ambitious, namely wanting to reduce workers' dependence on payday loans which often eat away at them. Education plays an important role in realizing this mission.

Because of this business model, some consider the EWA platform to be like a company . This assumption was categorically rejected by Shah. He said, since Payactiv created Earned Wage Access In 2012, Payactiv's competitors increased and the industry became more competitive.

He also tried to meet with the Consumer Financial Protection Bureau (CFPB) dozens of times to discuss. Until finally in early 2021, Payactiv's EWA product became the first product approved by the CFPB. “They acknowledged EWA is not a “credit” and is exempt from federal lending laws,” Shah said.

However, he has never been against products that help people meet their needs before payday. Payday loans are just the initial phase of the company's financial education process payday loan They don't bother involving employers, they just approach their workers.

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

He continued, there are people who use it payday loan, but no one ever asked why. According to him, this happened because there was a mismatch between receiving biweekly wages, and several days in between where bills and other expenses had to be met.

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

"Earned wage access correcting these misalignments, while increasing worker liquidity, reduces demand for high-cost credit.”

In Indonesia itself, AFPI Daily Chair Kuseryansyah explained that the regulations that accommodate EWA players are actually included in digital financial innovation and digital financial innovation supporting services which refer to POJK 13 of 2018 concerning Digital Financial Innovation.

“The platform must register with the OJK as an IKD. "If not, it could be reported as an illegal fintech service because it is not registered, registered and licensed with the OJK," he said.

Of all EWA players in Indonesia currently, only KoinGaji products have been registered as IKD in the aggregator cluster under PT Sejahtera Lunaria Annua. Others admitted that they were preparing themselves to submit themselves to the OJK.

In the midst of the great opportunities that await, Ben continued that he believes the growth of EWA players in Indonesia will be slower than players abroad. Because, the stigma of illegal loans is still attached to Indonesia. Therefore, EWA players need to carry out more massive education. KoinWorks needs to first introduce the vision and mission of KoinGaji.

"It is hoped that this will provide awareness that this product is really needed and helpful, and can even prevent employees from getting caught in illegal loan interest which in the end can affect the employee's performance."

Nevertheless, both Agrawal and Cobysot are prepared with Indonesia's large population to deepen EWA adoption.

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

Cobysot added, “If we look at the COVID-19 pandemic which encourages remote work as well as industry trends gig economy Indonesia is still very green and not yet well regulated, we are sure that the services provided by EWA startups will continue to develop in the future, as demand continues. "As an illustration, currently the use of Gigacover products has increased 10 times throughout 2020 among the Indonesian independent worker community."

- *Header photo: Depositphotos.com