In Africa, many people who earn low to moderate incomes often struggle with managing their finances. The traditional practice of getting paid once a month can create financial stress and force people to turn to costly and risky informal lending options.
These quick fixes come with steep costs such as high fees and exploitative interest rates, and can easily lead to a cycle of debt.
Earned wage access (EWA) is a financial service that allows employees to access a portion of their earned wages before their regular payday. This model is gaining traction as a way to improve financial flexibility for workers. EWA provides a crucial financial buffer, allowing employees to meet unexpected expenses and avoid debt traps.
For these employees, EWA becomes a lifeline. Not only is it a far cheaper alternative to credit, but because EWA facilitates access to one’s own money, there is no debt accrued. This means workers are empowered to handle their financial difficulties with their own money.
Various fintech companies in Africa are now exploring EWA solutions, integrating them into broader financial service offerings. These companies leverage technology to offer accessible and user-friendly platforms. Some notable players and start-ups are emerging, focusing on payroll integration and partnership models with employers.
Several African multinational corporations, including Hungry Lion, Pepkor and Massmart Africa, have embraced the technology and partnered with EWA providers to make the service available to their staff.
The growth of the EWA industry has also been fuelled by investors who recognise its vast potential. For instance, Nigerian-based EWA provider Pade received a $500 000 pre-seed raise, and one of their competitors received funding from the Bill & Melinda Gates Foundation. In South Africa, EWA company, Paymenow received R250-million through RMB to expand access to their offering.
Deon Nobrega, CEO of Paymenow, says: “In the context of persistently high inflation, economic and political uncertainty, and rising interest rates, employees are under real pressure. EWA provides a lifeline that more and more employees are eager to take. Well-designed EWA platforms not only alleviate immediate financial challenges, they also empower long-term financial stability and resilience.”
Employees who use EWA enjoy improved cash-flow management, reduced financial stress, and overall better financial wellness. Employers recognise the value of EWA as a tool to enhance employee satisfaction, reduce turnover, and boost productivity. Offering EWA is increasingly viewed as a competitive advantage in attracting and retaining talent.
Nobrega explains the impact of these outcomes: “Financial stress significantly impacts employee well-being and productivity, and EWA mitigates this stress by enabling employees to access their wages when needed to help them stay in control.
“As our 2023 Impact Performance Report showed, 92% of our customers would have had to borrow money if they hadn’t had support from Paymenow, and 94% of Paymenow customers say their quality of life has improved, with two-thirds reporting significant improvements.”
Since its inception in 2020 in South Africa, Paymenow has grown and expanded across the African continent. Paymenow boasts over 100 corporate clients and approximately 500 000 users in South Africa, Zambia, and Namibia, and now processes over half a million transactions monthly. Paymenow recently expanded its operations to Uganda, in recognition of the strong demand for EWA services across sub-Saharan Africa, and is also looking at opportunities beyond the continent.
Nobrega concludes, “The rise of EWA technology in Africa is addressing a major problem for low-income workers across the continent, facilitating access to previously unattainable liquidity. And as the EWA industry continues to expand in Africa, enabled by investor funding and partnerships with employers, EWA providers are looking to expand their services to offer even greater benefits.
“This includes access to additional financial wellness offerings like education, savings tools, and payroll services to further support underbanked workers. We continue to be driven by our belief in the power of this technology to revolutionise the financial landscape and empower individuals to achieve financial freedom.”