Many low wage salaried earners across the world find it difficult to make ends meet. They often live from paycheck to paycheck with poor access to insurance, precautionary savings, credit and “mental bandwidth” or time for financial planning.
This could likely generate far-reaching negative consequences, forcing to pawn/sell assets or rely on costly credit sources which lead them to a dangerous cycle of debt. One of the methods to tackle this stress is through fintech solutions like Earned Wage Access (EWA).
What is EWA?
An increasingly popular trend in the developed world and to some extent in India, is EWA. It allows low-wage earners quicker access to funds. Say, an employee wants money and it’s the 15th of the month, the employee can withdraw salary that’s equivalent to 15-day wage (or a certain percentage of that) and get the rest on the designated payday.
EWA products are comparatively cheaper than high-cost payday loans. Walmart has tied up with PayActiv to provide EWA services to more than 500,000 employees. It allows employees up to six EWA withdrawals every three months and two withdrawals at no cost to the employee every three months. Research shows that employees with such access are satisfied and the company is more likely to retain them.
After surveying 3000 Indian employees, EWA solutions provider Refyne with Ernst & Young discovered that 80 per cent of employees ran out of salary before the next paycheck and 77 per cent felt positive about EWA products.
Women will be a major beneficiary
A study conducted by Good Business Lab and Busara Center for Behavior Economics revealed that women (some married) relied on their parents, extended family, co-workers, neighbors, pawn brokers, chit funds etc. The purposes were often unplanned expenses like medical emergencies and unescapable payments like school fees. The study revealed, married women felt a flexible salary option like EWA would equip them against these sudden unplanned expenses and for women with no savings, it replaces costly credits, especially during an emergency.
For married women tasked with mobilising funds for their household, EWA proves to be a reliable option over friends, family or other moneylenders. For some with no decision-making roles in their family, they tend to save and borrow without their husband’s knowledge. In times as such, EWA can come in as respite. For others who neither earn nor involve in financial matters, the EWA still comes in handy when their husband’s ask them to arrange funds. On the other hand, few women were apprehensive that with interest-free credit, they may be tempted to overspend on unnecessary things.
Designing EWA with care
EWA has the potential to create a positive impact on the wellbeing of low-income workers who, without it, are likely to choose more expensive forms of credit. This will also improve women’s access to funds when it is desperately needed, furthering their bargaining power within the household.
Research suggests that EWA solutions should be mindfully designed so that;
- It prevents overspending, through a cap on withdrawable amounts or the number of free withdrawals per month
- Access is combined with tools for improved financial budgeting, and savings/investments
- Who bears the administrative charges to use the service must be decided.
- It may face legal hurdles if governments see it as a different form of predatory lending when firms charge very highly from the users.
If the state, employers and fintech companies come together, then EWA can be designed effectively to improve the overall financial wellbeing of low-income salaried employees.
