How technology can improve employee financial wellbeing

The following case study may be fictional, but it is representative of the experiences of thousands of workers up and down the UK.

John works as a sales assistant at a sizeable retailer, a role which pays on a four-weekly basis. One Monday morning just before heading into work, he discovers the boiler has broken down. He calls out an engineer. The damage? £150 – at least.

As it’s the depth of winter, John has little choice but to pay the cost up front. The only trouble is his rent for the month is due on Wednesday and is he now in the red. He has no savings. The bank of mum and dad was shuttered a long time ago.

That night finds John tossing and turning in bed. Short on sleep, he struggles on the shop floor the following day and misses several sales opportunities, for which he is paid a small bonus. Usually, he is one of the top performing members of his team when it comes to converting sales patter into hard transactions. (He also has a holiday planned and could do with the extra money.)

But not today. He has a lot on his mind. At lunchtime, he Googles a payday loan company – one which he has used many times before. What other choice do I have, John asks himself? The interest rate is well into three figures and John’s heart sinks before he clicks his approval of the terms and conditions. What other choice do I have?

The scourge of payday loans

The predicament John finds himself in is a depressing indictment of wholesale poor financial wellbeing among employees – in both the UK and beyond. An estimated 12 million working people in the UK are believed to be running short on money from pay cheque to pay cheque, resorting to high interest loans just to get by.

Unfortunately, the recourse of payday lenders – and, more inimical still, loan sharks – can lead to workers being locked into vicious cycles of debt, which become harder to break free from over time.

In turn, money worries can have a detrimental impact on productivity at the grindstone.

According to a recent survey conducted by Salary Finance – a fintech financial wellbeing platform for employees – around four in ten employees admitted to having money troubles on their mind. The study – which included 10,000 workers across 25 industry sectors – also revealed that those in the group of 40% were almost nine times more likely to suffer from sleepless nights. Similarly, they are seven times more likely to struggle to complete daily tasks.

The financial services industry might well be accused of doing this ever-broadening section of society wrong. While the likes of Wonga may have bitten the dust, unscrupulous payday lenders remain strong in numbers; part of a hydra-headed marketplace. The fall of Lehman Brothers, which foreshadowed the financial crisis, might be a decade ago, but banks remain circumspect when it comes to lending – even small loans.

This makes the launch of Advance, a new on-demand pay app from Salary Finance – geared towards plugging the chasm of financial exclusion which workers are at risk of slipping into between paydays – both judicious and timely.

Through the app, employees are free to draw up to 50% of their earned pay whenever it best suits them – even if they have been in a workplace offering the scheme for just one week. In the fictional case of John, this would mean that he’d be able to access enough money to cover both the boiler repair work and his rent for the month without having to struggle through to payday – or worse, seek out a payday lender.

Employees are required to pay a fee of £2.99 for each drawdown – or can opt for a monthly subscription of £9.99 – with Salary Finance plugging into the payroll of participating employers to collect Advances made at the next pay day. In this way, risk is eliminated, with only a small fee charged.

According to Asesh Sarkar, Salary Finance’s co-founder and CEO, one of the central benefits of Advance is that it allows employees to reconcile their pay with regular outgoings, such as rent or mortgage repayments, which can be a challenging business.

“In general, people get paid either monthly or weekly, but that doesn’t necessarily tie into when their outgoings are,” he explains. “People’s outgoings tend to be monthly, and at different times of the month, which they aren’t always equipped to deal with. Advance allows you to draw down your money to align with bigger costs.”

Helping to budget

As Sarkar rightfully states, poor money management and budgeting is one of the key factors when it comes to people struggling to make ends meet between paydays. As revealed in recent research undertaken by the Money Advice Service, it’s quite common for employees to blow up to one third of their salaries within a week of payday. One fifth of people in the study admitted to going on spending sprees on clothes, as well as takeaways and a night out.

“Advance also allows you to get your disposable income in smaller chunks, which, in turn gives you a level of control that means you’re not overspending,” he says.

Sarkar also points to the fact that a significant chunk of Britain’s working demographic is paid on a four-weekly basis, as opposed to monthly, meaning they receive 13 pay cheques over the course of a year, as opposed to 12, causing an imbalance between pay and fixed costs. This is a something that is often neglected in the debate around financial wellbeing.

“Not a lot of people realise that a lot of people in the UK get paid four-weekly,” he says. “So they might receive 13 pays in a year, but every single loan, mortgage, gas and electricity bill represents 12 fixed monthly costs, so you are always out of sync.

“It’s therefore really difficult for these people to keep enough money in their account to cover these outgoings. So the real benefit of on-demand pay is that it removes the effort and maths required of people to match their pay to their outgoings – while receiving their disposable income in much smaller chunks – and to better manage their money.”

Addressing financial exclusion

From Salary Finance’s perspective, Advance is very much a continuation of the group’s existing employee loan products. However, while the group’s roots may lie in the UK – where it was set up in 2015 – Advance was first launched in the US, a market whose financial exclusion problems was the focus of a report by Harvard’s Mossavar-Rahmani Center for Business and Government.

The study highlighted the potential of identified salary link – employer-sponsored fintech geared towards helping workers with poor credit access to mainstream financial products – as a means of boosting financial inclusion. Earlier this year, Walmart, the world’s biggest employer, also tied its colours to the mast in offering its workers a pay-in-advance app as an alternative to payday loans.

“We’ve followed closely the research done by Harvard and recent developments at Walmart – which are clearly a good thing,” explains Sarkar. “We’ve definitely drawn inspiration from the US, so we thought it was a good idea to pilot our own app in a bigger, established market.”

Having successfully dipped its toes into American waters, adoption of the product has also followed in the UK, with IT software and business services software provider Agilisys becoming the first workplace in the country to provide Advance earlier this year. With integration of the app “relatively simple process”, it is likely we will see Salary Finance partner up with further companies in the coming months.

One organisation specifically alluded to by Sarkar is the NHS, in which the efficient and timely remuneration of staff working overtime – a perennial hot topic – has long proven to be problematic. What role could Advance play in this regard?

“A huge problem for the NHS currently is that trusts are often unable to get their own staff to do overtime because it takes so long to process payments – sometimes up to six weeks,” says Sarkar. “So they end up taking on agency staff because agencies are able to pay them more frequently.

“With Advance, a nurse, for example, could do an overnight shift and expect to be paid 50% of that pay the next day without having to wait any longer. This is essentially the closest association between work and reward which can be beneficial to everyone.”

Find out more about the Advance app with Salary Finance.