[TOP STORY] Technology streamlines intra-monthly salary advances
SIMON BROWN: I’m talking now with Deon Nobrega: he’s CEO of Paymenow. Deon, I appreciate the early hour. I want to discuss access to earned wages. Before we do that, in a memo you put out, you talk about employee incentives. … I guess it was happening before the pandemic, but after the pandemic it seems that [given] flexible working hours, maybe even shifts, mobility, health wellbeing [employee incentives involve] so much more these days than the base salary you receive.
DEON NOBREGA: Yes absolutely. Hello Simon. Listen, I think there are a few factors that you’ve already pointed out. If you look at the society we live in right now, especially in the commercial space, everything becomes a very interconnected space. We are becoming a society where everything is on demand. Most people recharge their electricity once a week. They top up airtime every two days. If you want groceries or food, you hop on an app and it’s delivered to your house within minutes in some cases. It is therefore this “on-demand” consumer society.
However, we have this periodic cash flow that happens on the other end when it comes to how people get paid. The majority of people in South Africa, or especially in emerging market economies, are still paid monthly and it’s this huge disconnect between an on-demand society [and] pay periodically or once a month.
SIMON BROWN: I understand your reasoning. I did not think about that. Of course, in some markets, in the United States, I think payroll is usually a bi-weekly process, which in a way seems strange to me. But our life is happening. Our life does not revolve around calendar months.
This is where Access to Earned Salary comes in, which is what you do at Paymenow. When I look at that, it’s a payday loan; but I think the “payday loan” is maybe putting it in a bad basket in a sense. It’s sort of like accessing a portion of your salary up front, and then I guess erasing it at the end of the month?
DEON NOBREGA: Simon, listen, we’re not causing your full payment to be available to you throughout the month. Typically, through a system like Paymenow or the Earned Wages Access industry, employees typically have access to 25% of their earnings throughout the month. I think it’s pretty easy to put us in the payday lender category, because that’s sort of what the market is used to.
But we’re using technology to really disrupt that market, with things like being on average 10 times cheaper than a payday loan, which we’re very proud of, and something we’re able to do with technology. But also other services, through services like Paymenow, are free: like the possibility of recharging electricity, the possibility of buying food and groceries.
This is done through an interconnected e-commerce space that we have built that leverages vendors, as well as this ability to connect to large employer payroll systems.
SIMON BROWN: How does this work? I imagine a company would sign up for this, and initially it’s almost a plus. And then it’s in an app. So I can say, “I need cash” and, kind of, immediately, I can go and say, well, actually, “I need cash to buy electricity” . I’m not going to an ATM, just send me the [voucher] Number.
DEON NOBREGA: Yes. So Paymenow, or the industry, we are a software as a service platform. We are a business service provider. They are able to allow access to earned salary to their staff using a service like Paymenow.
A simple example: if you earn 30,000 rand per month, which is not the norm in South Africa, it is around 1,000 rand per day. So if your employer signed up for a service like Paymenow, usually giving access to 25%, on the 10th of the month, you earned R10,000. But in theory, you will have access to 2,500 rand on the 10theor 25% of R15,000 on the 15th of the month.
Now we know that the average salary for employees on systems like Earned Wage Access and Paymenow is much lower than that, so closer to around R5000-6000 per month, and the average usage we found is R350. twice a month, then a few refills of electricity, food, airtime and data worth about R150. So we’re talking about R700/R750 per month of typical usage that we see.
These are not massive loans. It’s not money to pay for a vacation or a car. It’s really just this demand for goods and services on demand that we are now so used to using according to our needs.
SIMON BROWN: I imagine – and you hit that point – because it’s done almost at the employee level that you said you can do it a lot cheaper. I never mean “never say never”, but you are pretty much guaranteed to get that money at the end of the month. You take almost no credit risk, because I imagine that you are then paid directly by the employer?
DEON NOBREGA: Yes. So certainly our credit risk, as a business like ours, passes from the consumer to the business. There is still some concentration and credit risk. Obviously, we have to check who qualifies, for [be able to] provide the service. But at the same time, you are one hundred percent right, this then translates into a massive saving for the consumer or end user. Generally, our fees are the same as for an ATM withdrawal. But then, as I mentioned, the added benefit is the ability to get goods and services like electricity and food at no cost, because then we’re able to get a discount on the back- end with the supplier.
SIMON BROWN: Ahhh, okay. So I come back to my first point. It has almost nothing to do with the payday loan. I will remove that from the process. You’re saying, I guess, you could do it with the big companies. But … [the] average person [is] taking R350. It’s really the lower end of employed space. These are people who are struggling. And, going back to your previous point, the idea of us getting paid monthly is just kind of something that maybe exists for no real reason.
DEON NOBREGA: Well, the reason for that is obviously that it’s a huge burden on a business to have to deal with intra-month cash flow, to have to deal with intra-monthly payments. Using technology obviously unlocks it. So for us it’s really about how can we best use technology in this type of society?
I think maybe just another point I wanted to make is that potentially a lot of listeners and your followers have the luxury of owning a car. You put fuel in a car and have just planned your transportation for the next week or two. But your average low-income workers, who unfortunately make up the majority of the South African workforce, these guys and women have to hop in their car or taxi every day. This [needs] cash on hand and having to budget for that kind of cash flow on a daily basis, but [being] paid monthly is a massive disconnect.
SIMON BROWN: I’ll take this. It’s a great example. We put gas in, and it’s the next 10 days or something. We can make this cash flow.
We will leave it there. I really appreciate the time. Deon Nobrega is the CEO of Paymenow.
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