A Stellenbosch-based fintech start-up says it is using some of the same techniques used by gaming companies to give employees access to their earnings instead of having to wait for the end of the month, while promoting financial education.
Founded in August 2019 by former Springboks and Western Province rugby player Bryan Habana and businessman Deon Nobrega, Paymenow is an app that allows employees to cash out a percentage of their earnings — before payday — and this amount is then deducted when they get their salaries.
Habana said their platform was created in an effort to stop predatory payday loans and promote financial responsibility among South Africans, especially encouraging savings.
“Doing business for good” is Paymenow’s main differentiator, Habana said.
According to Hoopla Loans, most payday loans are in the amount of R500 to R10,000. Old Mutual says borrowers can be charged up to 5% interest a month, which, when added to administration fees, could end up being more than R400 in fees and interest on a R2,000 loan.
Paymenow recently concluded an initial equity investment round with ViaMedia, part of the Digital Ecosystems (DigiCo) Group, for a R4m equity stake.
DigiCo — previously Blue Label Mobile — houses a variety of tech companies that provide products and services to cellphone users.
Paymenow is based on similar business models in the UK such as Wagestream, which works with employers to let employees draw down a percentage of their income in the month for a flat fee. The model has gained some interest with Wagestream having raised $51m (R847m) in 2019 for its own business.
In SA, the industry is in its infancy but with Paymenow and competitor SmartWage having launched about the same time, competition is likely to grow.
Habana said employees will not have access to all earnings when they first start using the service. By completing certain financial education modules and courses on the app, an employee can access a higher portion of their earnings. He said their gamification approach is designed to encourage better financial habits.
Users also have a credit score in the app that tracks their progress.
Nobrega, MD at the start-up, said their team actually went to the UK to engage with businesses such as Wagestream, the initial plan being to buy the technology from such players and customise it for SA. But they instead chose to build their own platform, which delayed their launch.
Habana said the delay has affected their ability to engage with companies given the national lockdown, which came into effect soon after the official launch in March, but they were nonetheless happy with the take up of Paymenow’s service so far.
To date, Paymenow has about 2,000 employees on its system having signed companies such as stationer PNA Online; ED Trading, an independent owner of Sasol forecourts, Bootleggers & RocoMamas; DNi Group and DigiCo.
More than anything else, Nobrega said he is proud that they took their time to develop the platform and gain all necessary certifications before going out into the market.
Nobrega said they are in talks with a number of companies and expect the employee count to reach 10,000 in the next three months. Their strategy is to sign up companies with 200 or more employees for the services, which comes at no charge to employers.
He said with about R100bn in salaries and wages processed every month in SA, their company is chasing about 5% of that market.
Paymenow makes its money through transaction and services fees paid by employees that opt to take a portion of their earnings before payday. That said, some employers have decided to take on the charges on behalf of their employees, Nobrega said.
For a R1,000 advance Paymenow charges R50. A comparative payday loan adhering to the National Credits Act’s fee structure equates to R280 in fees.
Nobrega said their “nano-advance” offering is “more impressive” where for R160 advance, Paymenow’s fees are R16 compared with normal payday loans fees that would amount to R230 for the same advance.
Nobrega explained Paymenow funds all withdrawals made by users during the month. As their platform is integrated into the payroll systems of employers that have signed up for the service, deductions are automatically made and settled when payday comes.
Paymenow has a R50m working capital facility through DigiCo that it uses to cover payments to users.
Habana is confident that their offering is cheaper and a better alternative to the “predatory payday loans” that many South Africans sign up for. In addition to financial education, the theme of responsibility is further emphasised through options to save and invest in unit trusts, he says.
Over time, Nobrega said their plan is to also promote Paymenow’s app as a payments platform, especially for electronic goods and services such as bill payments, airtime and electricity. As DigiCo is part of the DNI Group, one of the largest vendors of such products in SA, Nobrega said that evolution of their platform makes sense.
The app is available on the web and for Android smartphone users with an iPhone application on its way.
As Paymenow and others fight to change consumer behaviour away from typical payday loans, it will be interesting to see which platform will grow to win the battle of the salaries.
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