The UK's Financial Ombudsman Service claims to have received 10,979 complaints about payday loans between April and June 2018, according to figures from its annual review for 2017/18.
The figures came just weeks after what was the UK's biggest payday lender, Wonga, went into administration.
But London-based Fintech startup, Wagestream, has emerged to put an end to the misery of 'poverty premium' as it makes a stand to 'destroy payday loans'.
Simply put Wagestream allows employees to access their own wages as they earn them rather than waiting for the paycheck at the end of the month. Whatever amount they withdraw, workers are charged a flat fee of £1.75, which is deducted from their paycheck along with the amount withdrawn.
Wagestream provides an application platform on iOS and Android for employees to keep track of how much they earn on a daily, hourly and monthly basis, and the available amount they can withdraw from their earnings in real time.
Although it charges employees to access their own money, the hope is that because it's not a loan per se, but rather access to wages already earned, it could reduce the reliance on payday loan companies for low-income workers, which often charge enormous interest for even small loans.
A report (PDF) from health education charity the Royal Society for Public Health found that payday loans are the unhealthiest form of credit. The results found that 62 percent of respondents who drank alcohol would drink more as a result of stress from payday loans. The hope with Wagestream is that it could reduce this stress, and even reduce the 'poverty premium' - where low-income families end up paying more than higher earners for basic goods like household appliances, for example.
"The whole purpose of Wagestream is it allows salary or hourly-paid workers to have access to their income, and the important caveat is that you have to have earned it so we don't provide loans or credit in any way, shape or form," Peter Briffett, CEO and co-founder of Wagestream told Techworld.
"It's about providing financial fitness and about giving people access to a form of capital so that they can take care of any unplanned expenses. In a given month, about 85 percent of the UK is on a monthly pay cycle so the stress in the system is quite hard felt if you're a lower-income employee."
"This is a proper financial wellness benefit, which is different to what anyone else is doing, as it's not a loan," Briffett added. "Every time an employee makes a withdrawal there's a fixed charge of £1.75 whether they withdraw £800, £500 or £200 - it doesn't make any difference, so it's an ethical solution that's there to help people get out of cycles of poverty."
Launched in January 2018, the startup began a pilot programme with over 20 UK employers to stress the importance of providing better financial health to staff members. This included CitySprint and Fourth, the hospitality solutions provider for brands like David Lloyd Clubs.
Wagestream explained that offering this to workers can lead to a rise in staff retention and overall happiness from employees, even promising a 10 percent increase in staff retention and 20 percent in workforce productivity.
"We've seen a real impact on the behaviour of employees," Briffett said. "If they're able to access their earnings directly after a shift they're much more likely to take more shifts and they're more likely to look for more tips and actually increase the amount of shifts they do.
"So there's a huge benefit for an employee, and we work with employers to roll this out so obviously they get the retention benefit, the productivity benefit and the recruitment benefit having something like this rolled out."
The startup recently raised £4.5 million in funding, backed by a number of venture capital investors such as QED Investors, Firestrartr and Village Global – the global VC firm backed by Bill Gates and Jeff Bezos.
"We've just been very lucky I think because we're doing something that has a lot of social impact," Briffett added. "I think the concept helps itself to be quite frank, it's got a huge benefit for the employer that rolls it out and there's massive tangible benefit for the employee, and if we can give payday loans a kick on the way through there's a lot of investors that like that concept."
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Wagestream shared an example of a customer, Key Security, which recently launched the platform for its employees to track overtime shift hours and pay per hour.
According to Briffett, the CEO at Key Security was struggling to get staff to fill overtime shifts, especially because the business is a 24-hour security firm. It saw Wagestream as the best solution to offer flexibility to staff and get the available hours filled up.
"The CEO rolled out Wagestream just for his workers so that if there's an overtime shift they can access that money, and now they're literally fighting over shifts, so that's been great to see," Briffett said.
"We sit between timekeeping and payroll so we can understand every minute of every day how much someone's earned in a month, and then we can show them via the app what they're able to withdraw from their earnings," he added.
Wagestream also allows employees to keep track of tips as well as hours worked. The argument is that this visibility puts financial control in the hands of workers, ultimately meaning a win-win for employers and their employees.
"Therefore, they act differently and they become far more productive because they see a much stronger link between work and financial reward," Briffett said.
In future Wagestream hopes to explore more ways to help workers tackle the payday poverty cycle and that could be via a product that acts as a sort of financial Fitbit, Briffett explained.
"We're really trying to give them a second by second financial health check, so we're just trying to help them get through the month without having to go into debt so that is definitely where we're heading with the product," he said.
"It's like a financial cushion, you don't want someone using it every day but it's there if they need it and that's the main thing. That's what really helps them reduce their 'poverty premium'."