The Financial Services Authority (OJK) warned consumers about 86 unlicensed online lending companies in May. Services offered by such companies are often fraudulent and might involve high fees or predatory debt-collecting methods.

Earned wage access (EWA) start-up Wagely was established in April last year to tackle employee cash flow problems, giving people access to their wages before payday to cover urgent needs.

The Jakarta Post’s Eisya A. Eloksari interviewed Wagely cofounder and CEO Tobias Fischer on July 5 to learn about the company’s plans and how EWA could help employees and employers alike.

Question: What is the reason for establishing Wagely?

Answer: I have seen firsthand that managing cash flow is one of the most pressing issues for low- and middle-income workers in Indonesia. When faced with urgent cash needs, they can borrow from friends or family, [or from banks, but then] they either pay overdraft or late fees.

Workers often take to loan sharks or predatory lending platforms, too, which would overcharge them. It is a very costly, vicious cycle of debt that has a lasting negative impact on employees’ financial well-being, which in turn impacts businesses. So, giving employees the ability to access salary and financial education is much more affordable and sustainable than loans.

Can you explain how Wagely works and how it benefits employees and employers?

We provide employees access of up to 50 percent of their earned wages per pay cycle, or a maximum of Rp 3.5 million (US$242), depending on the preferences of the employer. This way, we ensure that the employee still has enough regular salary at the end of the month. Also, we currently charge a flat fee that can be paid by the employee or the employer.

Employees' financial stress in Indonesia has always been very high, and it is especially so now, with the pandemic. Probably more than 70 percent of Indonesians live paycheck to paycheck, and when there is an unexpected expense, people often struggle, because they do not have any savings.

This is one of the reasons why, over the last 12 months, we have seen an impressive level of employers onboarding with us as a countermeasure to the severe financial impact COVID-19 has on employees.

Employers often have very little visibility as to how severe that financial stress is for the workforce. Therefore, we provide full visibility, analytics, actionable insight and recommendations for employers, so that they can take proactive measures to really support their employees.

Employers see higher employee retention, a lot less working capital requirements for employee loans, known as kasbon in Indonesia, higher productivity and a much more financially resilient workforce.

How does Wagely, and EWA in general, differ from loans?

We [don't provide] loans, while incumbent financial institutions and predatory lending platforms typically have a repeated reliance on loans. These platforms also make money when people are stuck paying interest and late fees, while Wagely offers a much more affordable and responsible alternative.

We are fundamentally different from predatory lending, but not necessarily from peer-to-peer (P2P) lending. I think we have a complementary aspect to P2P lending solutions, but we focus on a different [aspect], which is to help employees access their salary.

The transactions made [by users] after getting their earned wages indicate that around 70 to 80 percent of employees use [the funds] for emergency cash flow issues, such as covering medical expenses, education fees or higher bills, especially now that, because of the COVID-19 social restrictions, people spend more time at home. Based on our data, hardly anyone uses our solution for consumptive behavior, such as buying a smartphone or television.

EWA apps are quite new in Indonesia. How do you see this sector grow in the future?

The EWA concept is quite a new approach in Indonesia. However, workers in the United States or Europe have the option to get instant payment from their employers, so it is just a matter of time until it will also change in Southeast Asia.

Giving employees real-time access to their wages is also interesting for the market dynamic, because everything is on-demand these days, from ride-hailing to food delivery and even doctor’s consultation, but how come salary is not on-demand?

From a philosophical point of view, it is not fair to the employee, because they must work a full month before they get paid instead of daily, especially because we know that cash flow issues from monthly payments are causing massive problems for employees and unnoticed costs for employers.

I think there is some learning to do, because no one has used and questioned this system in the past, but we believe that the way people access their salary and get paid is changing at scale.

Wagely received $5.6 million in funding in June, how are you going to use these funds, and what are your business plans for this year?

We are working with more than 50 companies, from state-owned enterprises to multinational companies, such as British American Tobacco, Ranch Market, Kencana Energy and Mustika Ratu. The funds will be used to continue onboarding more companies in Indonesia.

We want to build a holistic financial wellness platform that also provides a path toward financial stability, savings, insurance etc. So, there are a couple of interesting features that we are planning to launch in the next few weeks.

Our target is to have 250,000 employees using our platform by the end of the year, and we are on a good track to get to that number.

Editor's Note: This article was updated for clarity.

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