In Nigeria, salaries of formal sector employees are paid monthly; in the informal sector, however, this is paid daily. Now, when employees go bankrupt between two paydays, they have three options: borrow, take out a loan, or request a payday advance. But most of the time, loans carry aggressive interest rates, and payday advance programs could plunge an employee deeper into debt.
Earnipay, a fintech solution, founded by Nonso Onwuzulike, allows employees flexible access to their accumulated wages any day of the month.
Review the payroll cycle
In 2019, Onwuzulike started a recycling business in Accra, Ghana, to reduce plastic waste and enable plastic recycling in the capital. While running the business, he hired garbage collectors and put them on a monthly payment schedule. However, these employees, all from the informal sector, were unhappy with this. They were used to getting paid when the job was done or at the end of the working day. The monthly payment cycle left them strapped for cash and unable to match their daily expenses with their income. As a result, after wages were paid at the end of the month, many workers left the company in search of other employment.
Eager to stem the high attrition rate of waste collection staff, the company moved from a monthly payment schedule to a flexible schedule, allowing workers to be paid more frequently, weekly, or both. weeks. The change increased their productivity and fewer workers left the ship.
It was a light bulb moment for Onwuzulike. He then surveyed 100 formal employees within his network to find out how often they ran out of money before payday and what their employers were doing to ease their financial difficulties.
Onwuzulike’s initial intention for Earnipay was to create a payday advance solution, in line with similar solutions already in existence in Nigeria, some of which are powered by traditional banks. But the plans changed when the results of the survey of 100 people showed that 90% of employees would prefer to have flexible access to their accumulated wages.
âPeople don’t need payday loans or payday advances to finance their lives; they just want to get paid more frequently, âOnwuzulike said during a call with TechCabal.
Earnipay is currently in beta, with Onwuzulike as CEO, Busayo Oyetunji COO and Joshua Ajayi CTO. As Onwuzulike tells TechCabal, they all consider themselves to be the co-builders of the product.
“Works like an ATM”
Earnipay is not available to individual employees, so employers must register and integrate their staff. The Earnipay app allows employees to withdraw up to 50% of their accumulated daily salary as earned at the time of access, at any time of the month. Earnipay funds the withdrawal.
For example, if someone takes their paycheck on the ninth day of the month, that means they are entitled to half the amount they earned for nine days of work. At the end of the month, his employer deducts the amount withdrawn from his salary, uses it to reimburse Earnipay for the initial funding of that withdrawal, and then pays the balance to the employee as his salary for the month.
There are transaction fee levels associated with withdrawals. Withdrawal from 5,000 to 10,000 incurs a charge of 500, and withdrawal from 10,001 to 50,000 incurs a charge of 1,000.
âIt works like an ATM,â Oyetunji said.
Crossing the formal and informal workforce
The informal sector represents around 80.8% of the workforce in urban Africa. In Nigeria, where Earnipay operates, the sector represents over 70% of the workforce.
When Earnipay was tested three months ago, Onwuzulike envisioned that the solution would only be useful for low-income staff and informal workers, but the income profile of app users varies, says Onwuzulike. âOne of our clients earns a million naira a month,â he said.
So far, 17 companies have logged in to the app as active users, and their employees have used Earnipay over 400 times.
There is no doubt that there are benefits to shortening payment cycles. For example, an employee can see their day-to-day salary breakdown on the app, and unlike a payday loan or advance, which are borrowed funds, an Earnipay withdrawal is salary earned.
Yet some of the threats inherent in payday loans and advances can also arise here. For example, an employee who is unable to manage their personal finances may end up dipping into their salary before payday for the most frivolous reasons, and even after receiving their salary balance at the end of the month, may still have some debt. struggling to control spending.
Responding to these concerns, Oyetunji said, âThe main problem here is that we are not financially educated. Whether you get your money at the end of the month or access it [daily] while you are working, if you are not financially disciplined, Earnipay may not make a difference in your spending habits.
At the height of the COVID-19 pandemic last year, Africa’s formal and informal economies were hit hard. Six percent of formal workers were out of work in Malawi and Nigeria, this figure soared to 45%. Today, as Africa adapts to the reset imposed on the entire world by the pandemic, financial well-being in all sectors of employment has become more important than ever. âWe are in a financial health pandemic,â Oyetunji said. âThe quality of life is reduced because people cannot finance their daily needs. How can our spending be on demand when access to earned wages is not? “
The Earnipay team began developing the product in July, received pre-seed funding in an undisclosed amount in August, and launched its minimum viable product (MVP) to market in September.
Commenting on Earnipay’s plans for 2022, Onwuzulike said, âOur goal is to partner with employers to improve the financial well-being of employees. We provide income earners with tools to make better financial decisions and improve their quality of life. In addition to flexible access to salaries, we offer financial education to advise employees on best practices for managing their finances, and other products to help them on a day-to-day basis.