Risk capital investors are increasingly evincing interest in earned wage access (EWA) startups in Southeast Asia that are disrupting the payday lending model.
Take Indonesia, for instance. Even as the sector is at a nascent stage in the country, as many as two deals have been closed in fintech startups riding on the burgeoning EWA wave this year.
While wagely raised $5.6 million in June, GajiGesa secured $2.5 million in seed capital led by Defy.vc and Quest Ventures in February, with participation from GK Plug and Play, Next Billion Ventures, Alto Partners Multi-Family Office, Kanmo Group, besides a slew of angel investors.
Funding in both startups, headquartered in Jakarta, come in as they carve out aggressive expansion plans to serve the underbanked workers in the country, thereby allowing them access to their earned wages before the end of their payroll cycle.
“We have invested in three other similar models – Australia’s Wagetap, Europe’s Symmetrical.ai and Spain’s Payflow … in Southeast Asia (it is wagely). … there is a bigger problem for developing countries than the developed countries [in terms of living from paycheck to paycheck],” said Jay Lim, venture partner at Global Founders Capital, an investor in wagely.
In Vietnam, Nano Technologies raised $3 million in seed funding earlier this year. The round was led by returning investors Golden Gate Ventures and Venturra Discovery, and included participation from FEBE Ventures, Openspace Ventures and Goodwater Capital.
Nano plans to develop new products for employers in the Vietnamese market, including tools for managing staff and engagement.
In the last 5 years in Vietnam, there has been an explosion of online consumer loans with high-interest rates that make workers fall into the trap of owing dues, unable to pay, sell or pledge assets, said Do Bui, founding partner at ThinkZone Ventures that led an undisclosed round in Hanoi-based EWA player GIMO.
Besides the Indonesian and Vietnamese players, other startups that have mushroomed in Southeast Asia over the last few years include Malaysia’s HariGaji and Pay:Watch as well as Singapore’s Circopay and GetPaid.
EWA is not a loan from employer to employee. It enables workers to access earned wages in real-time and withdraw them at any point in time, instead of receiving salaries at the end of the month or week.
“Employees can have immediate access to cash, which is critical for those who can’t easily obtain affordable credit,” said Valerie Vu, an investor at Venturra Discovery, which pumped in capital in Vietnam’s Nano Technologies.
EWA startups started gaining prominence in Southeast Asia especially after the COVID-19 crisis shook the world, having an adverse impact on incomes and jobs of daily wage workers, with companies announcing layoffs across sectors.
“I think earned wage access applications will be very useful for businesses amidst the economic recession,” said Do Lan Huong, CEO at Vietnam-based tourist company Saigontour.asia, which has had to slash over 50% of its staff during the pandemic.
However, even before the pandemic days, many workers were living ‘pay-check to pay-check’ and struggling to manage their personal finances.
According to a report by DailyPay last month, employees who have access to earned wages can save up to $1,205 per year on an average, in overdraft fees, late fees and interest fees on loans, without having to wait till the end of the month to receive their salaries.
The EWA Impact Assessment H1 2021, which surveyed 2,200 workers, reported that stress decreased for 77% of the people using EWA platforms.
Several EWA players in SE Asia
|Company name||Year of establishment||Country||Description||Investment rounds|
|wagely||2020||Indonesia||wagely is a responsible financial wellness platform that gives employees visibility into their daily earnings, instant access to earned wages, and the power to plan ahead - proven to decrease employee turnover, enhance retention, and increase business savings.||$5.6 million led by Integra Partners (formerly known as Dymon Asia Ventures). Other investors included the Asian Development Bank (ADB) Ventures, PT Triputra Investindo Arya, Global Founders Capital, Trihill Capital, 1982 Ventures and Willy Suwandi Dharma, former president director of insurance company PT Asuransi Adira Dinamika.|
|GajiGesa||2020||Indonesia||GajiGesa is a fintech startup that provides earned wage access (EWA) and other services for workers in Indonesia.||- The lates round is undisclosed amount from OCBC NISP Ventura, founders of grab-and-go coffee chain Kopi Kenangan.
- A $2.5 million seed round led by Defy.vc and Quest Ventures
|Nano Technologies||2020||Vietnam||Nano helps employers manage their workers’ requirements better and more cost-effectively while helping employees stay out of debt.||$3 million in seed funding round led by returning investors Golden Gate Ventures and Venturra Discovery, and included participation from FEBE Ventures, Openspace Ventures and Goodwater Capital.|
|Gimo||2020||Vietnam||Gimo is Vietnam's fintech company that provides Earned Wage Access (EWA) and other payroll services to underbanked Vietnamese workers.||Undisclosed amount in a seed round led by ThinkZone Ventures, BK Fund.|
|HariGaji||2020||Malaysia||HariGaji is Malaysia's first earned wage access and salary tracking platform that lets users feel more secure during emergencies and difficult times.||-|
|Circopay||2019||Singapore||Circopay is an employee benefit that gives employee access to their salary on demand. It is 60% owned by Australian salary-on-demand provider BNPL Next Limited.||-|
|GetPaid||2020||Singapore||GetPaid is a voluntary employee benefit providing earned wage access to employees in Singapore.||GetPaid is pre-seed funded and is Fintech certified By Singapore Fintech Association|
Advantage SE Asia
There are significant numbers of low-skilled, low-wage workers who struggle with unexpected financial expenses between pay-cheques.
In Indonesia alone, many of the 140 million low- and middle-income workers, or 72% of the country’s workforce, live from paycheck to paycheck. That probably explains why cooperatives, or koperasi, which are appointed by companies and operate like trade unions for workers in the archipelago, are jumping onto EWA to create goodwill for employees.
In Vietnam, meanwhile, as many as 11 million workers in industrial zones earn an average income of $400-500 per month.
“Therefore, the EWA business model has great development opportunities and can soon expand to other countries in Asia,” said Bui.
Most workers in Southeast Asia are paid salaries at the end of the month, except The Philippines where wages are paid on a fortnightly basis. It’s common for workers to go to up their employers and request for a salary in advance, usually at a zero-interest rate. “However, not everyone gets the approval,” said Vidit Agrawal, co-founder and CEO of Indonesia-based EWA startup GajiGesa.
In such a situation, the alternative for an employee is to turn to payday loans which are typically doled out at 30-60% interest rates per month.
A payday loan is a type of short-term borrowing based on your income while predatory lending usually involves unfair and deceptive tactics that mislead borrowers about the true nature of a loan. This exposes people to the cycle of debt.
How EWAs work
Each time employees request for their wages on EWA apps, they are charged a small transaction fee. The HR department of their company is accordingly notified and the amount is thereafter shared with the employee within 24 hours.
At Vietnam’s GIMO, employees can receive their salaries in 60 minutes upon request and the startup is working with a host of banks to expedite the process to 5 minutes, said its co-founder and CEO Nguyen Anh Quan. GIMO claims to be serving about 5,000 employees currently.
“If you ask employees whether they would like to be paid fortnightly or monthly, they would choose the former,” said Lau Kin Wai, managing director at Fatfish Group, an Asia-focused technology venture capital firm that recently acquired Australian salary-on-demand provider BNPL Next Limited for $4.14 million.
According to a survey conducted by the firm, about 70-80% of the respondents prefer to have the option of EWA available to them.
Challenges to deal with
It takes time for businesses to realise the importance of the emerging EWA model, especially in countries such as Vietnam where the automatic payroll systems in companies are anyway not in the best of form, said Do.
“It is a new concept and there is some element of market education that has to take place, for increased adoption. This is especially evident in traditional companies that have yet to transition into a digital process,” said Annamalai Thani, co-founder and CEO at HariGaji, Malaysia’s first EWA provider. The firm charges a fixed monthly fee for the services it offers.
To ensure responsible spending behaviour, startups operating in the sector also provide financial guidance to employees, thereby assisting them with budgeting and saving tools.
“We try to educate employees about their financial standing as and when they transact with us,” said GajiGesa’s Agrawal. The firm also works with employers on capping transactions and setting withdrawal limits.
A study conducted by the Organisation for Economic Co-operation and Development (OECD) in Southeast Asia showed that over 50% of the employees in the region are stressed out about their finances, with over a third reporting how issues pertaining to personal finance can cause distraction at work.
That’s where the concept of EWA works and helps “retain employees and generate goodwill amongst the workforce,” said Vu.
Over the last one year, a slew of fintech companies worldwide has jumped on to the EWA bandwagon to reduce the financial stress of their employees.
A case in point is US-headquartered PayPal. In late 2020 it said it will grant its employees the access to withdraw earned wages whenever they wanted, as opposed to having to wait for payday.
The concept of EWA was reportedly conceived in the US by San Jose-headquartered fintech firm Payactiv in 2012. The company last year made headlines for raising a total of $133.7 million from high-profile investors including SoftBank Capital.
ADP, the largest payroll provider in the US, started offering an EWA solution in their marketplace through DailyPay in 2018. In May, Dailypay raised a whopping $500 million, catapulting it to the unicorn club.