Mary is in a mid-level position with a company in the Cape Town City Bowl. Her salary barely supports her lifestyle, and with the rising cost of living, she dipped into her savings some time ago, so she has no financial cushion.
With more months than money, she has nothing to fall back on in a crisis, like a car problem the week before payday, so she fakes illness to avoid going to the office because she cannot afford the cost of repairs. Like around 10 million other consumers in South Africa, she cannot approach a financial institution for a loan because of her poor credit history.
Her company’s payroll could have come to her rescue had she signed up for pay-as-you-go (ODP), also known as early access to salaries.
Such programs offer staff automated access to a portion of their already accrued salary – at a fraction of the cost of a loan from a registered credit provider and significantly less than what a loan shark would charge.
Launched more than a decade ago in the United States and Europe after declining solvency and confidence in the banking sector following the global financial crisis, these schemes, which integrate into corporate payroll systems, are gaining traction in South Africa, promising to be gentler on the pockets of employees who live paycheck to paycheque.
Financial stress is a key contributor to negative mental health, affecting staff well-being, performance and productivity. Data from the Pan-African Productivity Association shows that stress has a serious effect on productivity at work, with around 70% of unplanned absenteeism caused by stress-related illnesses, mainly financial. A financially stressed employee spends an average of 20 hours a month dealing with financial issues at work.
Many people run out of money before the end of the month; 76% have nothing left of their salary before payday.
PwC’s 2022 Employee Financial Wellbeing Survey found that 89% of employees fear they won’t be able to pay their bills.
Smart Wage co-founder Caroline van der Merwe says ODP gained traction in developed markets because it allowed people to get paid at the rate they wanted to be paid. “In South Africa this is desperately needed because 80% of people approach payday lenders or loan sharks. People are basically punished because they are poor.
Smart Wage targets the low-income market, people earning between R3,000 and R12,000 per month, charging companies or users a fee at a fraction of a payday lender.
Van der Merwe says many workers borrow from “inside” sources – people in the same company who act as agents for loan sharks.
“This is where extortion comes in. It’s in every business I’ve been to, from factories to retailers and fast food outlets. It’s shocking.
Smart Wage caps ODPs at 25%, a “liability limit” to ensure users can cover their major expenses. But Van der Merwe says that, on average, users only take 16% of their salary: “Most people don’t max it out; they use it when they need it.
ODPs are no longer a primary focus for Smart Wage, as the company has pivoted to solving broader HR issues through a WhatsApp chatbot.
Pay Me Now was the first to market in South Africa with ODP, which launched in January 2020. Co-founder Bryan Habana says four of their co-founders have a background in technology and can scale the platform appropriately .
“ODP offers a solution and leaves the employer fully in control.”
Pay Me Now introduced ‘gamification’ to educate users about finances, improve them and inspire them to manage their money.
“We’ve…created content that we believe allows people to look a little more concretely at their own financial environment,” Habana says. “It’s a very simple and easy to follow process. Users complete modules and earn points, as Vitality works for physical well-being, so users go through levels, and only in gold do you have access to the maximum percentage your employer has given you access.
As a change management tool, it is not about giving staff full access to the cookie jar from day one: the employer decides what they offer staff and which staff they is.
Having completed one million transactions on the Pay Me Now platform, Habana claims to have data and analytical insights to explain the benefits to employers. “ODP is here to stay”.
“Companies need to look at how they compensate their staff and understand their environment. We believe that the way we offer ODP is responsible.
For employers, ODP’s offering can be a key differentiator as it deviates from the traditional compensation cycle for salaried employees. Companies offering ODP report less staff attrition, higher loyalty, and better talent acquisition.
A 2019 report by Gartner analysts suggests that by 2023, 20% of US companies that pay staff by the hour will deploy flexible earned wage access solutions. DM168
This story first appeared in our weekly newspaper Daily Maverick 168, which is available nationwide for R25.