Is Earned Wage Access the Answer to Living Paycheque to Paycheque?

In today’s world, where many individuals live paycheque to paycheque, there is often a struggle to make ends meet before the next payday arrives. This financial challenge is not limited to the underbanked and unbanked populations but extends to those in more affluent societies. 

Recognising this issue, companies such as Paywatch located in Malaysia, offer solutions through Earned Wage Access (EWA), allowing individuals to access a portion of their earned wages before the traditional payday.

In an interview with Richard Kim, CEO and co-founder of Paywatch, he spoke of how earned wage access solutions work and the benefits it provides for both the underbanked and unbanked populations.

Providing relief from financial struggles

One of the core problems individuals worldwide faces is running out of money before the end of the month. 

“This issue is not confined to lower-income countries but can be seen even in more developed nations,” said Richard. 

“In countries with robust economies like South Korea, it’s not uncommon for workers to deplete their monthly wages by the 10th or 12th of the month. The situation is even grimmer in specific sectors like freelancing, where payment cycles often stretch far beyond the typical month-end, sometimes reaching up to 60 days,” he added.

PayWatch addresses this challenge by enabling individuals to access up to 50 percent of their monthly income before payday. By offering this service, the company aims to prevent people from resorting to loans, borrowing from friends, or turning to predatory lenders. 

Access to already-earned wages ensures that individuals can handle emergency expenses and unexpected financial burdens without falling into a cycle of debt.

Shifting the risk from individuals to corporations

The financial struggles faced by the underbanked and unbanked populations are further compounded by limited access to traditional banking services and high-interest rates. 

Financial institutions often hesitate to lend to individuals without credit history or with poor credit scores, leaving them with limited options and higher costs. 

According to Richard, one of the main obstacles to traditional financial systems is their approach to risk. 

Paywatch tackles this issue by shifting the risk from individuals to corporations, ensuring payments are received from employers. The rationale is straightforward: banks are more likely to trust large corporations to meet their financial obligations. 

Hence, by tying an employee’s financial services to their employer through the EWA system, Paywatch enables access to financial services regardless of personal credit histories. This paves the way towards financial inclusivity for historically marginalised demographics.

Collaborating with multinationals and banks for mutual benefit

In its initial stages, Paywatch strategically partnered with multinational corporations (MNCs) known for their credibility. The company worked across various sectors, including Fast-Moving Consumer Goods (FMCGs), retailers, and manufacturers, where employees often have limited access to financial products.

When it came to forging partnerships with banks, Paywatch presented a compelling case. In the era of burgeoning digital banks, traditional banking institutions need to broaden their customer base to remain competitive. 

Paywatch’s solution provided these banks with a low-risk method of acquiring new customers. Moreover, these banks were under increasing pressure from society and the government to assist the bottom 40 percent of the population. 

Paywatch’s solution offered a way to meet these expectations without giving out free money. Instead, they could extend their financial services to a broader demographic more safely and sustainably.

Improving employee retention and productivity

Implementing the EWA system has resulted in substantial positive transformations for companies adopting it. The system effectively reduces financial stress by providing employees immediate access to earnings. 

This, in turn, has the potential to enhance productivity, improve attendance, and increase employee retention rates. The cumulative effect of these benefits positively impacts organisations’ overall health and performance.

During times of crisis, such as the recent pandemic, employees with access to their earned wages are less burdened, leading to improved productivity and reduced turnover rates. 

“Many companies have reported significant employee retention and attendance improvements after implementing our solution. For example, in the food and beverage industry, where turnover rates are traditionally high, businesses using our solution have experienced a retention improvement of up to 75 percent”, said Richard.

This significant reduction in turnover demonstrates the potential of Earned Wage Access as a tool for improving job satisfaction and retention.

Paywatch’s expansion plans

Paywatch’s commitment to providing financial access has resulted in impressive growth. With over 200,000 employees benefiting from their services globally, PayWatch has experienced a rapid monthly growth rate of 40 percent in the past year alone. 

Paywatch processes over RM5 million (US$1.2 million) in monthly transactions through its app in Malaysia. The solution has also demonstrated its effectiveness in improving retention rates for both small and medium-sized enterprises (SMEs) and MNCs, enabling businesses to save up to RM2.1 million (US$ 500 thousand) in annual rehiring fees.

Paywatch aims to expand its footprint across Asia, with a particular focus on countries with a significant underbanked population. 

The company has recently partnered with bank KB Bukopin as it expands into the Indonesian market, making it Indonesia’s first bank-backed EWA service. 

“By targeting countries like Indonesia, the Philippines, and Thailand, where there is a large young population, our company seeks to promote financial inclusion and educate individuals about responsible financial habits,” said Richard.

Additionally, the company plans to introduce longer-tenure products, such as loans with favourable interest rates, to cater to the evolving needs of its user base. 

PayWatch strives to create a sustainable and impactful solution for addressing financial inequalities by partnering with major banks and financial institutions.

Contributing to United Nations Sustainable Development Goals

Paywatch’s mission and operations align closely with the United Nations Sustainable Development Goals (SDGs), particularly in eradicating poverty and promoting financial inclusion. 

By providing affordable and accessible financial services, Paywatch aims to fight poverty and reduces economic inequality. Their commitment to empowering individuals with financial knowledge and enabling them to build better financial habits contributes to overall financial well-being and a brighter future for the communities they serve.

Earned Wage Access solutions such as Paywatch have emerged as a game-changer for individuals facing financial stress and limited access to traditional banking services. 

By bridging the gap between paydays and offering a convenient, low-cost alternative to loans, PayWatch empowers employees and promotes financial inclusion. 

As Paywatch continues its geographic expansion and works towards its vision of helping millions of individuals, its efforts demonstrate the transformative potential of technology in addressing financial inequalities and fostering economic growth.

Full article on Fintech News Malaysia