[TOP STORY] Technology streamlines intra-month wage advances

SIMON BROWN: I’m chatting now with Deon Nobrega: he is CEO of Paymenow. Deon, I appreciate the early morning time. I want to chat around earned wage access. Before we do, in a note you put out you’re talking around employee incentives. … I suppose it was happening before the pandemic, but post pandemic it seems that [given] flexible working arrangements, maybe even hours, mobility, health wellness [employee incentives involve] so much more these days than just that base pay that you receive.

DEON NOBREGA: Yes, absolutely. Morning, Simon. Look, I think there are a couple of factors that you’ve pointed to there already. If you look at the society that we live in at the moment, especially in the commerce space, everything is becoming very much an interconnected space. We are becoming a society where everything is on demand. The majority of people reload their electricity once a week. They top up airtime every couple of days. If you want groceries or food, you jump on an app and that gets delivered to your house in a couple of minutes in some instances. So it’s very much this consumer society of ‘on demand’.

However, we’ve got this periodic cash flow that happens on the other end when it comes to how people are being paid. The majority of people in South Africa, or especially in the emerging market economies, are still being paid monthly and that’s that massive disconnect between an on-demand society [and] pay coming through periodically or once a month.

SIMON BROWN: I take your point. I hadn’t thought about that. Of course in some markets, in the US, I think pay is typically a fortnightly process which to me in one sense seems weird. But our life is happening. Our life doesn’t sort of revolve around calendar months.

This is where earned wage access comes in, which is what you guys are doing at Paymenow. When I look at it, it’s a payday loan; but I think ‘payday loan’ is perhaps putting it in a nasty basket in a sense. This is basically sort of saying access some of your salary in advance, and I imagine then clear it at the end of the month?

DEON NOBREGA: Simon, look, we’re not provocating that your entire payment be made available to you throughout the month. Typically through a system like Paymenow or the earned wage access industry, employees are given access to typically 25% of their earnings throughout the month. Putting us in the box of payday lender I think is quite easy, because that’s sort of what the market is used to.

But we are using technology to actually disrupt that market, with things like on average being 10 times cheaper than a payday loan, which is something that we are very proud of, and something that we’re able to do through technology. But also other services, through services like Paymenow, come at zero fees: like the ability to top up electricity, the ability to buy food and groceries.

That is done through an interconnected e-commerce space that we have built that leverages off the suppliers, as well as that ability to connect to the large employers’ payroll systems.

SIMON BROWN: How does this work? I imagine a corporate would sign up with this, and to the up-front point this is almost a perk. And then it sits within an app. So I can say ‘I need some cash’ and sort of immediately I can go and say, well, actually ‘I need cash to buy electricity’. I’m not going to go to an ATM, just send me the [voucher] number.

DEON NOBREGA: Yes. So very much Paymenow, or the industry, we are software as a service platform. We are a service provider to the corporates. They are able to enable earned wage access to their staff using a service like Paymenow.

A simple example: if you earn R30 000 a month, which is not the norm in South Africa, it is about R1 000 a day. So if your employer has signed up to a service like Paymenow, typically giving access to 25%, on the 10th of the month you’ve earned R10 000. But theoretically you’ll get access to R2 500 on the 10^th, or 25% of R15 000 on the 15th of the month.

Now we do know that the average salary of the employees on systems like earned wage access and Paymenow is a lot lower than that, so closer to about R5 000 to R6 000 a month, and the average usage that we’ve been seeing is R350 two times a month, and then a couple of top-ups on electricity, food, airtime and data to the value of about R150. So we talking about R700/R750 a month typical usage that we see.

These are not massive loans. This is not money to pay for holidays or pay off a car. It’s really just that on-demand requirement for goods and services that we are now so used to making use of as we need.

SIMON BROWN: I’m imagining – and you hit this point – because it’s done almost at the employee level you said you can do it a whole lot cheaper. I never want to say ‘never say never’, but you’re pretty much guaranteed to get that money at the end of the month. You are taking in essence almost no credit risk, because I imagine you then get paid direct from the employer?

DEON NOBREGA: Yes. So definitely our credit risk shifts as a company like ourselves from consumer to business. There’s still a little bit of a concentration and a credit risk there. Obviously we need to vet who qualifies, to [be able to] provide the service. But at the same time you’re a hundred percent right, that then translates to a massive saving to the consumer or to the end user. Typically our fees are the same as an ATM withdrawal. But then, as I mentioned, the further benefit is that ability to get goods and services like electricity and food at zero fees, because we are able to then score a rebate on the back end with the supplier.

SIMON BROWN: Ahhh, okay.  So I go back to my first point. This is almost nothing like the payday loan. I’m going delete that out of the process. You make the point, I suppose, that you could do it with large corporates. But … [the] average person [is] taking R350. This is really the lower end of the employee space. These are people who are finding it tough. And, to your earlier point, the idea that we get paid monthly is just sort of something that exists for perhaps no real reason.

DEON NOBREGA: Well, the reason is obviously because it’s a massive burden for a company to have to manage cash flow intra-month, to have to process pay intra-month. Using technology obviously unlocks it. So really for us it’s a case of how we can use technology better in this kind of society?

I think maybe just another point that I wanted to make is that potentially a lot of the listeners and your followers have the luxury of owning a car. You put fuel in a car and you’ve just budgeted for your transport for the next week or two. But your average low-income workers, who unfortunately form the majority of the South African workforce, these guys and ladies have to jump in their car or into a taxi every single day. That [needs] cash in hand, and having to budget that kind of cash flow on a daily basis but [being] paid monthly is a massive disconnect.

SIMON BROWN: I take that. That’s a great example. We put petrol in, and that’s the next 10 days or something. We can do that cash flow.

We’ll leave it there. I really appreciate the time. Deon Nobrega is the CEO of Paymenow.

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