Over the past several years in North America, FinTech start-ups like FlexWage, DailyPay, PayActiv, Earnin, Even and Instant Financial have sprung up to tackle the same problem: the majority of workers are barely able to cover their expenses in between pay cheques.
More than three quarters (78 per cent) of employees in the US live pay cheque to pay cheque and 71 per cent are in debt, according to a 2017 survey from job website CareerBuilder. The problem has led to a rise in “payday loans” – short-term loans with very high interest rates.
The solution? EarnIn, formerly called Activehours, sums it up in its slogan: “You worked today. Get paid today”. Such apps allow employees to access part of their already earned salaries, either by charging a nominal fee to the employee or the employer.
Now FlexxPay is doing the same in the UAE. The Dubai start-up allows employees to access up to Dh1,835 of their salary per month for an average fee of Dh25, depending on how early the advance is requested. After signing up its first corporate customers in June, FlexxPay now has 25 companies, such as pick-up and delivery service Fetchr, and more than 5,000 employees using its platform. The goal: to solve the pay frequency problem and alleviate financial stress for workers.
“In Europe and in the Middle East, you get paid once monthly. In the US, often you get paid twice per month. The problem is when you look at low-range salaries or even mid-range salaries, they live from payday to payday,” says Michael Truschler, FlexxPay’s founder and chief executive. “At the end of the month, or end of the pay period, they are really at zero and they’ve used all their income basically that they have from the previous month.”
Mr Truschler says it is particularly difficult for workers in the UAE who often support families outside the region, adding an additional burden. When unexpected expenses come up, such as a new car battery or a hospital visit or a flight home for an emergency, it can take them over the edge.
“These people get into trouble because they cannot easily access Dh1,000 or Dh2,000, so they have two options: they ask their friends and family; or they ask their employer for an advance. This either works out, or not,” says Mr Truschler.
They may also turn to the bank, leaving them in a cycle of debt. Three in five UAE residents say they have debt of some kind, most commonly from credit cards (33 per cent) and personal loans (28 per cent), according to a 2018 YouGov survey.
The way FlexxPay works is companies sign up to the platform at no cost. Employees can then request through the app up to 50 per cent of salary already earned. That means on the first day of the month, the amount available would be 50 per cent of one-thirtieth of the monthly salary. Payments are processed through Abu Dhabi Commercial Bank.
“We are a technology provider – we are providing the platform and the technology behind it. We are not a finance provider, so nobody can come to us and ask for a loan. That’s not our business,” explains Mr Truschler, who previously founded regional shopping channel CitrussTV and started his career in banking.
The fee depends on the time of the month the advance is requested, but FlexxPay is considering moving to a fixed fee of Dh25.
“The fee that we charge is quite nominal and low in comparison to what’s available in the market,” says Mr Truschler. “Usually banks charge about 10 times that for salary advances.”
Similar services internationally have various fee models. DailyPay allows employees to build up an available balance for each active work hour, and charges $1.25 (Dh6.40) for a next business day transfer or $2.99 for an instant transfer. Through PayActiv, workers can get $100 to $500 in the two-week period between pay cheques for a $5 fee. Earnin has a “pay what you choose” model, although it urges users to pay it forward by providing a “tip”. London-based Wagestream, a new kid on the block, charges a fee of £1.75 (Dh7.75).
Sometimes fees are paid or subsidised by the employer. Vancouver-based Instant Financial charges a "nominal fee" to employers, rather than monetising through employees. Walmart signed up with Even and waived the $6 fee for its 1.4 million workers eight times a year, the New York Times reported in December 2017. Over 300,000 Walmart associates use the Even app, according to Even's website.
FlexxPay’s target customers are companies who have a large number of low to middle-income employees earning between Dh5,000 and Dh15,000 per month, Mr Truschler says. It is up to the employer to choose whether to subsidise the Dh25 fee and even whether employee requests are accepted.
“We’re just purely facilitating the processing of what they have earned already with the direct relationship with the employer and the approval and control of the employer,” says Charbel Nasr, FlexxPay’s co-founder and chief technology officer, who previously worked with Mr Truschler at CitrussTV as chief operating officer.
Among the companies that have signed up for FlexxPay are AMI Middle East, a freight forwarding company in Jebel Ali; Mondia media, a digital entertainment provider in Dubai Media City; Asset Integrity Engineering, a services and management provider in Sharjah; and Fetchr.
Fetchr has rolled out FlexxPay to 222 of its UAE employees so far and plans to extend the service to the six other countries where the company operates.
“At Fetchr we always strive to offer benefits which are meaningful and helpful to our staff,” said Idriss Al Rifai, founder and chief executive of Fetchr. “By offering FlexxPay, we remove financial stress from our employees and empower those who need it the most to access a portion of their already earned salaries whenever they need it.”
Ultimately, companies will benefit by boosting productivity and increasing employee retention. When employees are in financial stress, they “are not as productive as they should be” and offering a benefit like FlexxPay can prevent people from jumping jobs, says Mr Truschler.
FlexxPay’s US counterparts back that claim. DailyPay research found that people are nearly two times more likely to apply for a job that pays daily and 73 per cent of its users say they are motivated to come to work. Companies have seen, on average, a 41 per cent reduction in turnover for DailyPay users.
FlexxPay is looking to offer other financial wellness tools on its platform, including a way for employees to set savings goals and employers to issue gift cards and loyalty points. It is also developing a cloud-based payroll solution for companies.
The start-up currently has four people based in Dubai and a technology support team of 12 in Serbia. It is planning to use part of an undisclosed seed funding amount raised in December to expand to Saudi Arabia in the fourth quarter of this year, and has a Series A funding round planned for the first quarter of next year.
“In terms of geography, we have no limits,” says Mr Nasr. “This is the beauty of FinTech now. It can be tailor-made to any country.”