Goodbye payday! You can now get 'paid as you go'

Wagestream reckons it can kill off the payday loan industry – but it’s not offering a loan or credit of any kind.

Wagestream allows workers to access their monthly wages in real time.

The start-up has got some big names behind it. It received £4.5 million in funding last October, with backers including Amazon founder Jeff Bezos and Microsoft billionaire Bill Gates.

It enables people to access their wages before payday and so avoid costly loans.

For example, say you earn £1,000 a month. After a week, you’ll have earned about £200 (the exact amount depends on how many days in the month), so Wagestream will let you drawdown this amount. Each transaction costs a flat fee of £1.75.

Then on payday at the end of the month you’ll be paid £798.25 (£1,000 minus £200 and the £1.75 fee).

Technically this isn’t a loan; there’s no credit and no interest. Instead, it’s early access to your own money in return for a small fee.

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How can I join Wagestream?

Not everyone can use Wagestream – you have to work for one of its partner companies. So far, participating employers include David Lloyd Clubs, Camden Town Brewery, Tru Be, and Key Security.

Wagestream is generally aimed at workers on relatively low pay or paid hourly. Companies with this kind of workforce can sign up to Wagestream for free.

Its system integrates with existing workforce management platforms, and there’s no impact on cash flow or payroll as Wagestream, not the employer, advances the cash.

Employees can use the Wagestream app to see how much they have earned so far in a week or month, and how much they can withdraw from their earnings. When they request a transfer, the money is sent to their bank account straight away.

The big selling point for employers is that by giving employees the flexibility about when they receive their pay, workers are - in theory - more productive, motivated and loyal, and less distracted by short-term financial problems.

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Wagestream and payday lenders compared

Wagestream’s target customers are those on low incomes who may struggle to borrow money at affordable rates – a very similar profile to a typical payday loan customer.

Although Wonga went bust in August 2018, the payday loan industry isn’t dead and buried yet. There are plenty of other high-cost short-term lenders offering loans at extortionate APRs to desperate borrowers.

For example, a 28-day £200 loan from Quick Quid costs £48, with a £15 late payment slapped on if you miss a payment.

It’s easy to see why Wagestream is more appealing than payday lenders. A £200 advance on your salary costs £1.75 and there’s no danger of not paying it back as the money is taken straight from your pay.

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What are the downsides to get-paid-as-you-earn schemes?

Accessing part of your salary before payday might sound great – but there are some potential pitfalls.

Firstly, whether you use Wagestream or a payday lender, you have the same problem: you’ve run out of money before the end of the month. There could be several reasons for this, such as you don’t earn enough, you spend too much, or you’ve had a mid-month emergency.

Increased flexibility about when you take your wages could mask the real problem – a lack of budgeting skills.

Using Wagestream regularly could be a bad habit to get into as you’d always be playing catch up with your money, and those £1.75 fees would start to add up.

To be fair, Wagestream acknowledges the need for more financial know-how – its app also includes financial education, budgeting tools, tips and advice.

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Are there any alternatives?

SalaryFinance.com offers a similar salary drawdown product to Wagestream. However, it limits employees to three withdrawals a month (not necessarily a bad thing) and caps advances at 50% of earned income. At £2.99 per withdrawal, it’s slightly more expensive than Wagestream.

There’s a bit more competition in the US, with companies such as Even, PayActiv, and DailyPay, all offering get-paid-as-you-go schemes.

In the UK it’s more common for employers to offer workers low-cost loans which are repaid directly from their salary.

For example, Neyber works with organisations such as DHL, Bupa, Asda, and Travis Perkins to offer employees loans from £2,000 to £25,000 repayable over one to five years, with repayments made direct from an employee’s wage packet.

SalaryFinance.com also offers employee loans as an alternative to salary drawdown.