The statistics for payday loans make for dismal reading. While the amounts are small — around £260 per loan — the average customer takes out six per year. Far from just being used in an emergency, payday loans are being used as an expensive way to manage the ebb and flow of day-to-day expenses.
The sensation of having too much money left at the end of the month is not familiar to many. One in four families has less than £95 in savings*. However, for Peter Briffett, it was clear that payday loans were making the problem worse rather than better. The key, in his view, was to find a way to give families more wriggle room when faced with unexpected bills, but in a way that didn’t compound the problem over time.
The idea for Wagestream came from an article Peter read about Walmart in the US. The shopping giant had created a flexible income deal with its staff, giving employees access to their earnings in real time. Bills didn’t come on a regular schedule, so why should earnings? On investigation, Peter found that, if anything, the need was even more acute in the UK. Walmart employees were paid every two weeks. The majority of UK workers — around 85% — were on a monthly schedule.
Wagestream sought to give employees access to their wages in real time. It would allow salary or hourly-paid workers to have access to their income, but they would have to have earned it — so Wagestream would not provide loans or credit in any way. An app would show them the level of earnings they had accrued, to the nearest five minutes. They could then withdraw a percentage of those earnings ahead of their next salary payment. The percentage that could be withdrawn early would be set by the company.
Wagestream would provide the financing, so the company’s balance sheet wasn’t affected and it wouldn’t impact on the payroll process. There would be employee and employer apps and a whole banking structure behind the scenes.
This is where the group started in 2017. It started small: they tried it out on the pizza delivery business below their offices: the early days of a start-up involve long hours and they were good customers. However, household names soon started following, including Carluccio’s, Stonegate Pubs, David Lloyd Gyms and Rentokil. The group now has 130,000 employees on the platform, working with a broad range of companies, but particularly
those that use a lot of shift workers, such as the retail and hospitality sectors.
Companies have found it a useful tool to retain staff, but also to make those staff more productive. Briffett says: “A happy side effect was that giving access to accrued earnings encouraged people to do more shifts because they could access the cash immediately after they had earned it. This was a massive incentive and a really important aspect of income streaming.”
It also tapped into the financial wellness movement. An increasingly insistent body of research shows a relationship between poor mental health and financial stress. Enlightened companies increasingly realise that if they can take steps to ease their employees’ financial worries, they are happier and more productive at work.
This has helped the group win investment backing from philanthropic organisations such as the Joseph Rowntree Foundation, Big Society Capital and the Barrow Cadbury Trust, alongside more conventional venture capital backers. It has so far raised £4.5 million and is in the process of creating another round of funding.
Peter sees many more opportunities out there. He says: “NHS workers are the biggest users of payday loans*. If we can do something to ensure that people working in the health service don’t have to take these horrible loans, that would be a really important step.”
“When we looked at this, we saw a clear benefit for employees and employers and a chance to give payday loans a kicking at the same time. The end market is far bigger than we thought.”
To date, Wagestream has focused solely on its payroll ‘smoothing’ system. However, it now sees a market for workplace savings and a range of other financial products. They are in the process of signing a number of blue chip companies. Equally, open banking opens up a number of possibilities. The app could be extended, so that if someone takes £300 out of their wages, the system automatically books them in for a number of extra shifts, “like a financial Fitbit that can stop people going into overdraft”, says Peter.
Why has no-one done it before? Peter says that running payroll is expensive, so the less pay cycles that employers run, the better it is for their cashflow and costs. Also, evolution of technology now allows us to link workforce management data with financial data, which is the big breakthrough for a businesses like ours. With this link we can provide financial products no-one has ever seen before.
Peter has a number of successful projects behind him. He sold his first technology business to Microsoft and then built up online marketplace LivingSocial to £100 million. “I’ve always been in technology, so I’m used to the highs and lows. I like to grow and build things — maybe I had too much Lego as a child.”
His partner at Wagestream, Portman Wills, has a background in engineering and operates as chief technology officer. Peter says: “I’ve always been on the commercial side, so our skillsets are well-matched.”
“You’ve got to have real focus to go through the rollercoaster. If you believe in something and have a mission the whole company gets behind, it has a really good chance of success. For me, the social impact component is important — we know 38% are using our service so they don’t have to use a payday loan. If you provide real value, you should always be able to create a great company.”
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.