Exploring Earned Wage Access (EWA) as a Loan Product in your offering

Refyne: an Earned Wage Access (EWA) provider in India became a superfast success with its Salary-on-demand product

• Refyne has raised a total funding of $106M over 3 rounds.

• It's first funding round was on Dec 01, 2020.

• It's latest funding round was a Series B round on Jan 12, 2022 for $82M.

• 7 investors participated in it's latest round, lead by Tiger Global Management.

• Refyne claims to be working with 300+ employers having serviced 60 lakh employees

Here's a snapshot of the global funding landscape:

• Global EWA market expected to reach multi-billion dollar valuations by 2030, fueled by a CAGR exceeding 20%.

• Venture capital (VC) firms invested over $1.3 billion in EWA companies in 2023 alone.

• Notable funding rounds: PayActiv ($500 million), CloudPay ($185 million), Wagely ($50 million), Refynance ($80 million), DailyPay ($83 million).

• Regions: North America leads the charge, but Europe, Asia, and even emerging markets are seeing significant activity.

• Checkout JP Morgan research report on EWA

Is this an attractive loan product?

1) Lets understand from employee perspective

• 81% employees face liquidity crunch between pay cycles.

• Cheaper than payday loans

• Usually fee based charges and 0% direct interest

• Auto deduction from the next month's salary

2) From employer perspective

• Increased Employee Satisfaction and Retention: Offering EWA demonstrates your commitment to employee well-being.

• Reduced Absenteeism: Financial problems can contribute to employee absences.

• Improved Employer Brand: Offering EWA is an attractive employee benefit and can differentiate you from competitors, making you a more desirable employer.

  • In a research, 60% of employees said they would consider EWA as a deciding factor for their next job.

3) From lenders perspective

• Much better returns: Charging flat fee on slab based withdrawal results in average effective interest rates of > 60%

• Reduced risk for borrowers: with deeper integration with payrolls of the employers, repayment via payroll deduction is possible. Which significantly reduces the risks.

4) Lets understand from investors perspective

Why the investor buzz?

• Booming market and large addressable market: Millions of workers globally struggle with payday loan debt and financial instability. EWA offers a safer, more responsible alternative.

• Dual benefit: EWA improves employee financial well-being and boosts employer retention and engagement.

• Tech-driven innovation: EWA platforms leverage cutting-edge technology for seamless integration with payroll systems and secure transactions.

What are the operational challenges and risks to the lenders?

• Employer partnership led growth - This slows down the growth speed. Deep integration with employers is needed. Negotiating contracts with each employer can consume significant time and energy

• HRMS partnership led growth - this can turn out to be relatively faster way to grow. It can make your offering directly be available to all the employers on that HRMS platform

• Employee absconding can turn out to be bad debt - In developing country like India, absconding rates for employees is between 5 to 10%. In such cases employers may hold certain pay for not serving the notice period

• Operational data entry risks like wrong attendance marking, non-updation of exited employees, improper updation of salaries etc can also result in bad debt

• Competition can lead to price-wars and diminishing margins - employers will be attracted to lenders offering incentives and better pricing, resulting lower barrier to entry and exit

How can Synoriq help in setting up EWA as a new loan product for you?

Synoriq has world class loan management system that supports EWA too. Following is offered in the Synoriq EWA offering

• Product construct for EWA

  • Option#1: EWA similar to Credit Card offering with multiple drawdowns

  • Option#2:EWA as bullet loans with repayment on the salary day

• Handling EWA similar to Credit Card

  • Sanctioned limit

  • Daily changing available limit based on attendance

  • Multiple drawdowns within available limit

  • Slab based fee structure

  • Fee computation configurations - either compute on every drawdown OR monthly fee computation on every drawdown

  • Daily interest accrual - Interest computation (in any) on utilised amount

  • Billing of dues every month / N days before the salary day

  • Grace period

  • Define interest free period similar to credit cards

  • Interest / Penal charge handling on payment missed

  • Convert to EMI functionality

• Handling EWA as bullet loans under every-day changing limit at customer level

  • Each drawdown request is booked as a separate loan in the system with a defined repayment date

  • All loans are linked with the same Cust ID

  • Ability to define jumper rates in case of non-payment

• Additional top-up loans as personal loans

• HRMS handoff files and data exchange

  • Upload the daily limits to Synoriq LMS via file upload

  • API availability for limit updation via APIs

  • Employer-wise payroll deduction file

  • APIs available for employer-wise deduction information access

• Disbursements

  • Instant disbursements through bank integrations

  • Fee deduction from drawdowns directly and payment of net balance amount

• Loan accounting

  • Ability to compute Effective Interest Rates (EIR) as per IndAS