Earned wage access (EWA) products — a mix of fintech, HR tech, & the on-demand economy — first came to market in the US in the 2010s and they’ve experienced tremendous momentum across emerging markets in recent years. Across Africa in particular, EWA startups & solutions seem to be rapidly multiplying.
We asked expert founders pioneering the EWA model across Africa: What are the key drivers of this phenomenon, what do you make of EWA’s potential and fit within African markets (e.g., is EWA being ‘pulled’ by consumers or ‘pushed’ by companies), and what do you see as the keys to long-term success? Moreover, what are the main opportunities & risks relative to earned wage access in Africa?
Why are earned wage access solutions increasingly attractive across Africa and what are the keys to success?
Co-Founder & CEO, WorkPay
Earned wage access (EWA) is not an entirely new concept to businesses and employees in Africa. It has existed in some form or shape for a long time on the continent. For example, our experience shows that 8 out of 10 employers offer their employees some form of salary advance — a data point that shows the need from employees and the willingness of employers to ensure their employees are financially healthy.
However, over the last decade or so we’ve seen the fintech sector blossom across Africa and the world. These companies apply technology to traditional financial services problems and introduce gains of efficiency, simplicity, speed, and more. And the same is happening when it comes to employee wages, spend, saving, and even investment.
Across Africa, wages/salaries are traditionally paid on a monthly cycle, so employees have to find ways to cover expenses & emergencies between paychecks. Most of the time they resort to borrowing from banks or the many, readily available digital lenders. But these are either too slow or too expensive, and this creates a perfect opportunity for EWA.
While the potential for EWA in Africa is large and growing, the biggest challenge to EWA providers is to find ways in which they can offer the product for the lowest charge possible. Remember EWA is not a loan, it’s essentially early access to a salary someone has already earned. For this reason, I believe that success for EWA as a product over the long term lies in bundling it with other services.
Co-Founder & CEO, Jem (formerly SmartWage)
Founder & CEO, Salad
Despite having a predominantly lower risk profile and the highest likelihood to repay loans, salary earners across Africa still find it difficult to access credit at affordable rates between pay cycles. Current providers in the market today such as payday loans, traditional banks, and digital lenders are usually characterized by predatory interest rates, slow processes, and cumbersome documentation requirements.
As a result, Earned Wage Access has huge potential within the African labor market and the lack of liquidity in between paychecks presents a $30B funding opportunity across Africa every month.
In Nigeria, for instance, inflation has resulted in the continuous devaluation of the naira in an economy where there are over 70 million employees in formal employment. For these employees who are largely dependent on their salaries for financial needs and wants, the need for liquidity is acute as the daily cost of living rises, and this is integral to why low-touch, high-convenience solutions like EWA will thrive in the underserved African market today.
At the same time, employers increasingly view talent optimization, retention, and digitizing human capital management as not only a necessity but a priority, and EWA is an attractive means to drive this. Giving employees access to accrued, unpaid funds opens up avenues to help them save money long-term, generate wealth, and be more productive at work.
As to whether EWA is being pulled by consumers or pushed by companies, it’s a mix of both. For instance, at Salad we offer multiple payment options: employees can either pay a fee per transaction or their employers can cover fees on their behalf. And we continue to see strong interest in both options.
In terms of risks, there are several that face EWA as a novel solution. First, the reception to new financial services can be slow in African markets because levels of financial education are generally low. And secondly, because EWA solutions on the continent typically employ a B2B2C model where providers partner with employers in order to reach employees, it requires a strategic approach to acquiring employers — and not all teams are equipped for this at scale.
Co-Founder & CEO, Level Finance
Among the key drivers of the rise of EWA across the continent are:
- The need to grow financial inclusion — which includes proactive visibility into current and future financial health.
- The need to improve financial literacy — and EWA & complementary features/products are effective at helping employees understand their inflows and outflows.
- The need for employers to reduce employee financial stress & improve the financial capability of employees.
- The need for robust employee wellness benefits that serves more than affluent employees.
Across Africa, salaries have largely remained the same even though high inflation has raised the cost of living. Approximately 80% of the employable market lives paycheck to paycheck and the majority of employed Africans are heavily indebted. In South Africa, for example, the average loan size increased by 45% in just the last six years. And, as a result of cashflow issues faced between paydays, unsecured lending in South Africa quadrupled between 2009 and 2019. Moreover, according to DebtBusters, South African consumers spend on average 62% of their take-home pay to service debt.
Heavily indebted employees who cannot access cheap and affordable credit are forced to turn to unsecured lenders. Loan sharks or mashonisas, as we know them in South Africa, often charge exorbitant amounts in interest — up to 40% or even 50% of the original amount owed.
At Level Finance, we hear from workers regularly that EWA frees them as they no longer need to leave their ID documents with loan sharks, worry every time the phone rings or there’s a knock at the door, or look over their shoulders because they owe a mashonisa money. EWA gives them freedom and relief knowing they don’t owe anyone.
In terms of whether EWA is being pulled by consumers or pushed by companies, it’s largely being pulled by employees as evidenced by the very common practice of employee salary advances. However, in many organizations, employees who request salary advances are seen as having unhealthy financial habits and behaviors. So, EWA is a welcome alternative to give access to already-earned wages.However, for EWA to enjoy long-term success, employer buy-in is key so providers have to provide visibility to the problem of financially stressed employees, position EWA as a vital component to employee wellness benefits, and otherwise share compelling narratives about the benefits of EWA to employers.
Founder & CEO, Earnipay
The rise of EWA across Africa is largely driven by the opportunity created by the mismatch between monthly income cycles and daily expenses for a large percentage of individuals on the continent who lack a financial safety net and affordable liquidity options.
It’s still in its early stages across Africa, which comes with challenges. But these challenges can be solved with education and awareness and I believe in the future of earnings on demand and am bullish on EWA in Africa.
Reducing ‘time-to-money’ for employees across the continent has great potential to unlock prosperity. We’ve already seen this, for example, with POS devices when the change from T+1 to instant settlement gave rise to the POS phenomenon currently being experienced in Nigeria today.
EWA and faster employee time-to-money are poised to have a similar continent-wide impact.
Founder & CEO, Cadana
Earned wage access at its core is about providing maximum flexibility for employees and real-time access to their earnings.
The world is now increasingly real time. So, consumers are looking at various on-demand aspects of their lives such as how they order transportation or food to how they consume the latest movies, and are asking themselves ‘why can’t this also apply to my salary?’ ‘Why can’t I access my salary in real time?’
Moreover, businesses are also looking to do more to support their best talent, retain them, and recruit even more talent by offering flexible employee experiences. So we see a pull for EWA from both consumers and businesses.
And we see a tremendous opportunity for EWA growth globally, including in some of the emerging markets we serve.
Founder & CEO, SeamlessHR
There are three points to keep in mind when considering the rise of Earned Wage Access across Africa:
- Africa has the lowest retail debt to GDP ratio in the world. This means working people across the continent are the least able to leverage the ‘super-power’ of credit to better their lives.
- Interest rates across Africa are some of the highest in the world, with the vast majority of working people across the continent falling victim to loan sharks.
- Unlike in some other countries where people get paid every two weeks, Nigerians and most Africans get paid monthly whilst key expenses such as rent, automobiles, and more are usually paid in a lump sum upfront, making life harder.
EWA and innovative credit products for working people in Africa thus provide solutions to real problems people have and will undoubtedly succeed across the continent if well executed.