You may have heard the age-old saying before that being poor is expensive. Many low-income workers rely on payday loans or credit cards to get by, which often come with hefty interest rates and other steep fees. According to Bankrate, 58 percent of payday loan borrowers struggle to meet monthly expenses and 80 percent of loans are taken out within two weeks of paying off a previous loan. With the average payday loan of $375 accruing $520 in fees, that means those who rely on these loans are often paying more in fees just to borrow again before the next pay period to get by. This is just one reason payday loans are often criticized as being predatory to low-income households.
One company is trying to help by making financial wellness services and flexible payment options accessible to low-income workers, many of which are on the frontlines of industries like hospitality, food service, healthcare and retail. Wagestream, which just raised $175 million in a Series C round, is a financial wellbeing app designed for frontline workers, an often underserved population in the fintech industry. The company is based in London and recently opened its U.S. headquarters in D.C.
Users access Wagestream through participating employers, who subsidize the service. Once synced with an employers’ payroll system, employees are able to access and manage their income on a schedule that works for them. This means instead of turning to payday loans when workers need cash between paychecks, they can instead cash out as much as 40 percent of their earned income at any time. This helps reduce low-income workers’ reliance on payday loans and credit cards. There is also no interest on any earned income withdraws, meaning workers who may have used payday loans in the past aren’t constantly building debt just to survive.
Wagestream users also have access to a number of other financial wellness services such as automated and micro-savings, financial education and certified financial coaches who are available in real-time. The app also connects users with products such as insurance and utilities at reduced costs.
“When we launched Wagestream, many employers viewed financial wellbeing in the workplace as a long-term aspiration; now they realize it is an emergency,” Wagestream CEO and co-founder Peter Briffett said in a statement. “For example, 93 percent of companies we recently surveyed plan to put a financial wellbeing program in place, and we’re seeing a similar shift in the U.S. By addressing the financial well-being of their employees, employers become the hero and solve their own HR challenges in the process — from recruitment to retention to productivity.”
As a further commitment to financial wellness accessibility, Wagestream is a charity-founded company with a social charter that ensures user wellbeing is prioritized over profits. The company is held accountable to an Impact Advisory Board and reports its social impact to its shareholders on a quarterly basis. According to Wagestream’s own research, 77 percent of its users report feeling less stressed and 72 percent report better quality of life since using the app.
The funding round led by Smash Capital will be used to scale up support for Wagesteam’s users in the U.S., its fastest-growing market. In response to its regional growth, the company opted to open a U.S. headquarters in D.C.
A company representative told Built In via email that the decision to open its national headquarters in D.C. was “to build relationships across the charity [and] NGO sector, policymakers [and] public and private sector.”