How access to earned wages can mark the beginning of the end for predatory lending

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Can you handle an unplanned expense on your salary?

According to a recent E&Y study, only 29 percent of urban Indians have reported that they can cover unplanned expenses with their salary, while the majority still live paycheck to paycheck.

This essentially points to gaps in financial resilience in the context of the pandemic, more significant in emerging economies compared to developed nations.


To make ends meet between paychecks, many seek alternative financing options, turning to loans from friends and family and high-interest payday loans. Since then, a more cost-effective liquidity reserve alternative has emerged in the form of Earned Wage Access (EWA).

Let’s take a look at how the solution can enable comprehensive financial wellness.

Do we really understand payday loans?

Globally, payday loans have become synonymous with predatory and subprime lending.

These are short-term unsecured loans of about 2-4 weeks, enough to cover expenses until the next payday; the problem is the astronomically high interest rates that average over 400 percent APR (annual percentage rate).

In India, interest rates on payday loans can be as high as 2 percent per day. The number itself may not seem that big, but the APR can range from 36 percent to 730 percent, depending on the length of the loan. On the other hand, APRs for regulated credit schemes like loans and credit cards are typically between 12 and 30 percent.

To put this in perspective, if you borrow Rs. 10,000 at 2 percent interest per day, you end up paying Rs. 2,000 in interest for 10 days, along with the principal amount. For people already struggling to make ends meet, predatory lending pushes them into a vicious and inescapable cycle of debt.

The E&Y study, cited above, also notes that people earning less than Rs. 15,000 are six times more likely to fall into severe debt.

Regulators around the world are stepping up measures to limit the impact of subprime loans. The Reserve Bank of India (RBI), for example, is working on formulating an anti-predator lending policy.

Despite these measures, the unsecured loan industry is booming, intensifying the financial difficulties of ordinary Indians.

Interest rates for payday loans in India can reach 2% every day.

Access to Earned Wage: Affordable Alternative

By freeing employees and employers from the traditional pay cycle, access to earned wages helps disrupt predatory lending models. Earned Wage Access (EWA) or pay-on-demand empowers individuals by giving them access to a portion of their earned, but unpaid, wages at any time before their payday.


The same allows employees to withdraw their earned salary instead of relying on short-term loans to comfortably cover unplanned mid-month expenses. It makes salary earned available to employees in real time and on demand, giving them instant access to liquidity available at any time of the month. By paying only a nominal transaction fee (which is a fraction of the interest on payday loans), access to earned wages can provide a path to financial stability.

Small steps, big achievements

When implemented correctly, the benefits of access to earned wages are clear. Research indicates that nearly 43 percent of Earned Wage Access users are able to cover all of their expenses with their monthly salary, and one in two users feels optimistic about their financial situation.

Additionally, EWA is an employer-supported initiative – the solution is typically free to employers and has no impact on your cash flow. The unique feature not only allows organizations to contribute to the financial well-being of the overall workforce, but by breaking the pay cycle, employers ensure that employees can build their financial resilience.

Greater financial freedom

As companies around the world pay more attention to the needs of their employees and turn to technology for solutions, “access to earned wages” is poised to emerge as a popular and valuable product for modernizing financial wellness. of the employees. By adding on-demand functionality to one’s daily life, access to earned wages can radically transform the landscape of financial freedom for Indians.

The author is CEO and co-founder of Refyne

(Disclaimer: The views expressed are those of the authors and Outlook Money does not necessarily endorse them. Outlook Money shall not be liable for any harm caused to any person or organization directly or indirectly.)

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