A Johannesburg-based financial start-up says it can give employees instant access to their earnings for each day worked instead of having to wait for the end of the month. This is in an effort to stop predatory payday loans, co-founder Nick Platt told Business Day. 

SmartWage works by giving employees instant access to their earnings for work they have already done. For example, if a person has worked a certain number of days in a month and is in need of cash, the company will calculate a per day rate based on their total pay, and pay employees of registered companies what has been earned so far in a particular cycle. 

The business is based on similar business models in the UK such as Wagestream, which works with employers to let employees draw down a percentage of their income in the month for a flat fee. The model has gained some interest with Wagestream having raised $51m in 2019 for its own business. 

Simon Ellis, co-founder of SmartWage, said the business makes money through a 3% transaction fee for each payout made. Employees then receive the balance of their salaries and wages at the end of the month. 

But can such a business model actually make money locally, and are South Africans really willing to take on such a service?

Ellis estimates the opportunity for such a service to be worth R21bn. The aim is to get 5% of this market in the next three years, which would amount to about R1bn in transaction fees. 

For now, the company has about 6,900 employees registered, having signed up a number of businesses, including three Spar supermarkets in KwaZulu-Natal on its platform since being launched in February. 

The five-member team has also raised R1m from friends and family and is in the process of raising a further R20m from revolving debt facilities to provide liquidity for its operations. The company is currently in talks with UK bank Lloyds to provide insurance for its operations. 

The SmartWage platform is built using Amazon Web Services (AWS) technology but does not have a standalone app in place. Instead, users access the service using USSD, SMS, WhatsApp and Facebook Messenger. Ellis said they decided to go this route as these are the most widely used messaging platforms in SA, saving users from having to download an extra app to their device. 

Financial education portal

One of the concerns cited by employers for giving early access to funds earned is how that money is spent.  

Ellis said that when a person is first registered with SmartWage, they only have access to a percentage of the money earned up to a point. The company has built a financial education portal into the system where users can learn different aspects of financial literacy, such as savings, bonds, investments and current accounts. Based on their financial literacy level, employees can then get access to more of their money over time. 

Most employers take on the cost of SmartWage’s transaction fees but Ellis said some leave it up to their employees to settle this amount. In time, the company hopes to open up new revenue streams by giving loan advice, or banking and trust services. 

The main challenge for SmartWage is that “people don't understand that it isn’t a loan”, Platt said, explaining that their service costs eight to nine times less the typical payday loans people get in SA. The cynical attitude related to such loans is what the team is working on to reduce, he said. 

Ultimately, the big plan for SmartWage is to provide the service across Africa. For a company in its fourth month of operation, this is a long way away but in the short term, Ellis said Nigeria and Kenya would be good places to establish a presence.

The challenge for SmartWage is the informal nature of many African economies. This means a number of businesses don’t have formal employment contracts in place, a big hindrance for its business model in which employees are registered via their employers for the service.