Earned Wage Access (EWA) enables salaried workers to receive earned salaries prior to pay day. It offers an alternative to regular salary advances and pay day loans.  

Programs offering EWA began to emerge during the 2010s in the USA. There are two EWA business models. The first is linked to the employer and is known as the employer-integrated model. EWA providers act as an intermediary between employers and employees facilitating the salary advance. The employer enters into a contract with the EWA provider to manage their employees’ EWA requests. Following an employee request for an advance via the EWA provider, the EWA provider will distribute funds into the employee’s bank account.[1] On pay day, either the EWA provider or employer (depending on the exact model and contract) will deduct the amount advanced, together with any service and transaction fees, from the payslip prior to the balance being distributed to the employee. In other words, the EWA provider has automatic first priority on the employees’ earnings. Due to the automatic collection mechanism, providers face almost no risk of default.

Based on our high-level market scan, there are three employer-integrated EWA service providers in South Africa: Paymenow, which seems to be the biggest player, Paycurve, and JEM HR.  

The second model is direct to consumer/employee. This model does not involve the employer. Providers essentially operate as pay day lenders under the guise of EWA, without being subject to the regulations on credit providers. This solution is not formally available in South Africa, although given the vibrancy of the unregulated credit sector, it is no doubt very common.[2]

There are several potential positives associated with an employer–integrated EWA model from a consumer perspective. It allows users to smooth their cash flows and thus, presumably, their consumption. Crucially, it allows individuals to do this without taking up an expensive credit product. It also eliminates the need to directly approach an employer for an advance, thereby avoiding the associated indignity.  

That said, there are some potential issues. As with all credit products, usage of this facility may simply defer cash flow problems but not solve them. This is particularly the case where other relatively large expenses due after payday cannot be met with remaining available funds. Unlike other credit products, consumers have no ability to default if they cannot meet their obligations. While default is by no means a desired outcome, it is at times a necessary one.  

The selling point of EWA is that it does not charge interest. Instead, the business model relies on fees. But it is not clear what these fees are. To quote Paymenow;  

“A cash out on Paymenow will cost you a small service fee as well as a transaction fee to disburse the funds to your bank account. An immediate payment option is also available at a slightly higher cost. No interest is charged. No subscription fees. No hidden costs.” [3]

It is also not clear how the deduction impacts on the payslip itself. Depending on how it is recorded, it may give the impression that the employee earns less than he or she actually does. This may make it difficult for certain EWA users to access credit/apply for rental properties in the months after using EWA where historic payslips are used to verify income and assess affordability.  

Despite these concerns, a social impact assessment on Paymenow done by 60decibels seems to indicate such an overwhelmingly positive reaction to the service that it seems almost too good to be true. In a recent telephonic survey of 400 customers, 95% of respondents indicate that their stress levels relating to finances have decreased as a result of using Paymenow. Similarly, 95% answer that they have improved control over their finances with 83% indicating a greater ability to save. Perhaps most interestingly, 95% claim they have decreased the frequency with which they borrow.  

The real concern with the product however is not so much its impact on the consumer, but on others who have a pre-existing claim on the consumer’s earned wage. It is not clear that EWA providers are required to assess affordability and ensure that clients are not already over-committed. In addition, they have no incentive to do so. While repayments due to registered credit providers are processed through Debicheck – a system designed to avoid lenders jumping the collections queue, repayments on EWA are garnished directly off payroll and therefore precede all others.  

It is also not clear whether EWA providers submit data to credit bureaus. Without this, other prospective lenders cannot assess affordability as they have no visibility on the financial commitments of potential borrowers who approach them for a loan.  

Like buy now pay later (BNPL), EWA is an example of innovation that side-steps industry definitions, regulations and collection practises to meet the needs of severely cash strapped South Africans. However, it is not clear that regulators in South Africa are monitoring its development or even to which regulator the responsibility falls. While this may create fertile ground for consumer abuse, in the case of EWA the presence of a caring and concerned HR department who plays a gatekeeper role does much to assuage those concerns.  

The issue of data sharing is really where the problem lies. The absence of mandatory data reporting to credit bureaus presents a critical gap. Should EWA gain traction in the market, this lack of visibility on EWA will materially affect the broader credit system’s ability to assess and manage risks. Ultimately this may pose a significant risk not only to providers, but to consumers who rely on the sector to meet their financial objectives. 

[1] In some cases, the advance payment may be in the form of vouchers.

[2] In July of this year, the Consumer Financial Protection Bureau (CFPB), a regulator in the USA, announced a proposed rule interpretation to treat all EWA providers as providers of consumer loans making them subject to the Truth in Lending Act.

[3] See FAQs on https://paymenow.live/employees/

Sources

60_decibels. (2022). (rep.). Paymenow – Impact Performance Report. Retrieved 2024, from https://60decibels.com/wp-content/uploads/2023/09/60dB@Paymenow_Lean-Data-Results.pdf

Baker, T. H., & Kumar, S. (2018). The power of the salary link: Assessing the benefits of employer-sponsored fintech liquidity and credit solutions for low-wage working Americans and their employers. M-RCBG Associate Working Paper Series, 88. https://doi.org/10.2139/ssrn.3571499

Hawkins, J. (2020). Earned wage access and the end of payday lending. Boston University Law Review, 101, 705–759. https://doi.org/10.2139/ssrn.3514856

Moran, E. (2024, July). CFPB takes steps to regulate “earned wage access” providers. Norton Rose Fulbright. https://nortonrosefulbright.com/en-za/knowledge/publications/51061cd4/cfpb-takes-steps-to-regulate-earned-wage-access-providers

Paymenow. (2024, April 25). Paymenow market leading earned wage access provider in Africa. https://paymenow.live/