Independent research conducted by 60_decibels indicates the difficulty South African blue-collar workers are faced with on a monthly basis to stretch their wages through to the end of the month.

The Impact Performance Report was compiled on behalf of Paymenow, an earned wage access (EWA) fintech.

Deon Nobrega, CEO of Paymenow, says the concept of allowing employees access to a portion of their earned wages before month-end is simple, logical and has the potential to break the cycle of workers landing in the jaws of loan sharks.

“For many years, unscrupulous lenders charging high interested rates have preyed on employees struggling to reach month-end. The cycle of running out of cash and approaching a lender to make it to the next pay cheque has been deepened by Covid-19, which has caused incomes and savings of all South Africans to be stretched,” says Nobrega.

“The result is more than strictly financial – as household debts grow and unsecured loans eat up any available cash, workers find themselves in a debt spiral from which they cannot escape. The psychological effects of sustained elevated stress levels, relationship strain and feelings of losing control over personal finances can be severe,” he adds.

Paymenows users are mainly blue collar workers within multiple sectors across South Africa including facilities management, security and retail and the findings of the survey indicate that 24% are earning less than R85.00 a day, 48% earning R155.00 a day and supporting more than five people.

Survey respondents noted that where they used to run out of money before month-end, having access to their already earned wages means they no longer need to approach friends, family or loan sharks to get to the next payday. Eighty-one percent of respondents reported improvements in their quality of life, 67% say they have reduced levels of stress, 40% can now handle financial emergencies and 34% no longer rely on their families for support.

“Another key finding was that 27% of the interviewed users now report being able to pay household bills with no external help,” says Nobrega. “Groceries transport and medical expenses should not be expenses that are saddled with loan shark interest rates.

“This means a slight change to payment arrangements, with zero risks to the organisation, is allowing employees to regain financial control in their lives. That is a meaningful change for many South Africans because it preserves dignity and allows people to reach their financial goals.”

For workers who are already under pressure, something has to give when an emergency arises. Being unable to afford transport to continue coming to work or to put food on the table introduces a domino effect of consequences that frequently lead to debt traps and poverty.

Bryan Habana, head of business development at Paymenow, says the solution integrates seamlessly with payroll systems. “Employees simply request a withdrawal of a percentage of their earnings, with the maximum threshold determined by the employer, and it is deducted from the salary they will be paid at the end of the earning period. It does not disrupt cash flow and it’s absolutely free for employers.”

Habana says another fair question is around abuse of the system or reliance on it. “The solution is purpose-built to allow employees to make ends meet when they need cash and can’t afford high-interest loans, but it also includes a reward system based on reduced fees and benefits for improving financial literacy and managing wages more effectively.”

The result is that South Africans can escape the clutches of unscrupulous lenders and begin to save. “The driving reason behind a responsible earned wage access service is financial inclusion,” says Habana. “By learning financial literacy and managing wages effectively, fewer people are forced to drop out of the formal economy because of financial emergencies or hiccups. It is a travesty that so many vulnerable South Africans end up losing their jobs because they cannot make ends meet, such as being able to afford transport to work. This is what we aim to change.”