Early Wage Access - Scudi's Approach to Improve Financial Wellbeing
De Morgen recently published an article stating that 4 out of 10 Belgian citizens risk running out of money at the end of the month. That is enormous. Belgium is not alone in this problem, a problem that will only grow in the coming years. JP Morgan, for example, found that 45% of Europeans believe that their cost of living will grow faster than their salary.
This trend explains the rise of Early Wage Access solutions. I'm going, to be honest: I had never heard of Early Wage Access solutions until I recently spoke to Rie Sordo – De Cock. Rie recently founded Scudi, a social impact fintech with such a solution.
Knowing that many more may be prejudiced against such a solution, I challenged Rie to be our central guest at The Banking Scene Afterwork. The most asked question from the audience also popped up instantly in my head after hearing the solution: is this helping people with financial problems or simply delaying a problem, like By Now Pay Later does?
Throughout the blog, you'll learn it is the effectively helping people, with scientific evidence about the value of EWA (Early Wage Access).
Let's build Scudi
Rie built a career in The City. She would travel to Belgium every two weeks to visit her 94-year-old mother. At the start of the pandemic, he husband and her decided to extend the next trip to 2 months. The time in Belgium ended up much longer.
It was a period when Rie spent much time with her mother and spoke with carers and nurses who helped her mother. She heard stories of financial problems from people working hard to earn money.
Rie: "I realised that some of them had massive amounts of debt accumulated at terms, which I called Shark lending rates. For some, there was no way they would get out of it. One specifically got into financial problems when her mother died. She couldn't pay for the funeral. She took a loan but couldn't pay it back. So she went somewhere else and added credit cards. She has five different credit cards and credit providers, and she couldn't get any more credit. It was just mounting."
With the available time during the lockdown, Rie started researching the problem and came across the Early Wage Access solutions and realised this would be the basics for her new company, but with a twist.
Essentially, Scudi gives employees access to their already-earned salary through a mobile app. This element of anonymity takes away part of the shame of asking for an advance payment. They don't need the approval of HR or their manager. Employees can click for early access to the money earned, which will instantly be issued to their account.
The employer is equipped with a SaaS platform to manage all the administration . On that platform they can check transactions and download all required reports. Everything else is fully automated to keep the administration to a minimum. Rie: "We have a contract with an employer who basically has a subscription to the platform, we operate, and we service it."
The success of Scudi lies in convincing employers to ease the life of employees. This is challenging: although the advantages for employers are proven, they are not always as tangible. On top of that, employers often miss the liquidity required to allow early payments.
Truth be told: reducing people's financial stress has a direct positive impact on productivity at work. People in financial stress have a more challenging time concentrating at work. In the worst case, it even affects their physical health, resulting in short- or long-term absenteeism. Would it be for the long term, employers need to look for a replacement, which again affects productivity. These replacements need to be trained, they need to get experience, and all that takes time.
Studies have shown that employers with an EWA solution are more attractive in the labour market. This makes perfect sense, as it helps people with sudden negative financial surprises. Furthermore, studies have shown that accessing EWA positively influences someone's credit score. In that respect, it helps find the best people, positively impacting productivity again.
Early Wage Access, but with a Twist
The biggest twist is probably that many EWA solutions across the world are credit providers, which Scudi explicitly isn't. They provide a platform for employers to pay what is already earned, with no credit line involved.
More importantly, to challenge the misconception that EWA solutions only delay the problem but don't solve it: scudi measures someone's financial situation. They have alarm bells for certain patterns indicating a financial problem, in which case the employee would NOT receive an early payment. Rie: "As soon as the alarm goes, APIs push certain support links to the user, like Roov".
They offer budgeting tools and try to create financial awareness to create a much more holistic solution for financial wellbeing, instead of simply offering early access to one's salary.
To feed the system, Scudi set up gamification elements and quizzes that stimulate users to add data on their financial wellbeing. By playing those games, the user can earn, for example, accidental death coverage.
Rie: "It's a small amount, but it's imperative for many people who cannot afford it. Some people stay awake at night wondering: "what's going to happen if I die? What will my kids do?" They can't pay for the church, and they can't pay for my funeral.". This accidental death coverage can mean the world to them.
Creating this financial awareness is at least as necessary as access to early pay, explained Rie. The financial awareness that Scudi brings should make people feel more in control of their finances, leading to better financial and general wellbeing.
Any employer can sign up for the service as long as they respect Scudi's values. Respecting DEI (Diversity, Equity, Inclusion). Would an employer wish to sign up, they need to offer it to all their employees, irrespective of race, gender, disability or any other bias that exists in traditional credit scoring algorithms.
I want to come back to the comparison with Buy Now Pay Later. Although they often claim to enhance financial inclusion and wellbeing, the bottom line of their business is based on the number of transactions and euros spent in e-commerce stores.
Scudi must convince employers to sign up, not consumers. Their business case gets stronger for these employers as fewer employees actually use the tool, given the impact of early payments on their liquidity position.
This is proof that they have the best intentions in helping people grow to a more stable financial life.