New on-demand pay app to support employee financial wellbeing and break payday lending cycle

It is estimated that 12 million working people regularly running out of money between paydays, and seek out short-term, high interest loans to ensure they can make ends meet. However, this inevitably leads to a vicious cycle of debt, which many struggle to escape.

It was also recently revealed that as many as 40% of employees have financial worries, leaving them less productive at work and six-times more likely to report poor relationships with colleagues.

A new on-demand pay app is being launched to tackle this ever-increasing problem and provide employees with the peace of mind and happiness at work that financial security brings.

The Advance pay app from Salary Finance aims to provide a solution to this ongoing problem, which it believes is caused when working people cannot access their pay when they need to and are then forced to seek other sources of money, such as payday loans.

“Payday loans are one of the most criticised parts of the financial services industry,” said Cobley, co-founder of Salary Finance – a salary-linked benefits provider. “We know that workers facing financial shortfall typically take small short-term loans at very high interest creating a cycle of in-work poverty as they struggle to pay off the growing interest on top of the original loan.

“This is not a niche problem and recent research revealed 12 million people regularly run out of money between paydays. With banks shying away from this problem, many have no option but a payday loan, creating a huge issue in society.”

Research shows that financial shortfalls covered by payday loans and overdrafts happen 18% more when there is a mismatch between the timing of someone’s income and the bills they owe.

Through Advance, employees can draw up to 50% of their earned pay whenever they choose. If an employee in a workplace that offers the scheme has worked 1 week they can draw up to 50% of the money they’ve earned, which otherwise would be unavailable until their payday. The cost of each drawdown is a simple £2.99 fee (or a monthly £9.99 subscription). Salary Finance plugs into the payroll of participating employers to collect Advances made at the next pay day, eliminating their risk and allowing only a small fee to be charged.

“Advance is both a safety net for employees, to reduce the need for payday loans, credit cards and overdrafts, as well as a better way for them to manage their day-to-day expenses,” said Dan.

Research undertaken by the Money Advice Service has shown it’s not uncommon for people to find it hard to make their wage last all month, and it’s normal for one third of salaries to be spent within a week of payday.

“Part of the problem is the payday spending spree,” added Dan. “One fifth of people have reported they spend straight away on things like clothes, nights out and takeaways. Advance can support employees to receive their income at a cadence which better aligns to their costs and allows them the choice to take their pay throughout the month in smaller, easier to manage amounts.”

The product has already been adopted by a number of workplaces, including Agilisys, one of the first employers in the country to provide Advance.

Simon Mounsey, HR Director at Agilisys, said: “We are very excited to be launching Salary Finance’s Advance product. We care about the wellbeing of our people and if we can help them avoid high cost debts, and budget better, that can only be a good thing.

“We already work with Salary Finance in providing access to their low-cost loans repaid through salary. This is the next logical step and will help people avoid future debts.”

“While it’s easy to think that running out of money is linked to the amount you earn, our report (‘The Employer’s Guide to Financial Wellbeing’) found this is a common issue across salary bands with 43% of those earning less than £15k and 33% of those earning more than £60k running out between paydays.

“At Salary Finance our goal is to help millions of employees around the world become financially healthier and happier. Advance is an important addition to our product set, which overall helps employees save regularly, pay off debts, and learn better financial habits.”

The FCA’s website references Salary Finance as a member of Cohort 4 in its Regulatory Sandbox, designed to test innovative products. While Advance is a new product in the UK, it is fast becoming a mainstream product in the US, with Walmart – the world’s largest employer with 1.5 million employees – offering a similar product. Harvard Kennedy School recently analysed the impact of a similar product in the US, concluding that employers are seeing a 19% reduction in employee turnover, with a closer association between work and pay increasing employee engagement.

HRD Connect Curators of the New Business Landscape. HRD Connect produces industry-recognized content for senior HR leaders. Through articles, case studies, Q&As, podcasts, events, and more, we offer truly progressive and cutting-edge insights designed to help people leaders address core HR challenges and add greater value to their business.

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