Payroll is one area of business that has experienced a break in innovation and time. On the surface, it may not seem like anything in need of major change. After all, it’s worked well enough so far: you work your hours and get paid every two weeks or every month. Although the current system is not entirely suitable for the majority of the population that lives for paychecks, the machines have been largely uncomplaining.
Earnings Payoff promises to be the turnaround the payroll system has probably been asking for for some time. The premise is simple: EWA proponents say that labor should be paid on demand, and a good portion of the workforce agrees.
We spoke to three investors to find out how well the industry has embraced this pay-as-you-go model and which startups are winning, and they paint a picture of a fast-paced industry that’s still trying to find its footing.
Jennifer Ho, partner at Integra Partners, said, “In 2021, more than $1.13 billion has been raised by startups offering EWA products. Due to changing lifestyles, cost of living and the residual impact of Covid-19, many small and medium enterprises have become dependent on EWA. Especially in Asia, EWA picked up steam this year.
But there are many hurdles EWA startups must overcome to gain the trust of employers and employees, Ho said. “It’s important to remember that EWA companies are typically B2B2C businesses and face challenges that many B2B2C businesses face: the decision maker and the consumer have different incentives and priorities.”
Although the various EWA models have seen varying degrees of success so far, Ho believes that the employer-based model is the winner.
“In terms of financial inclusion, models where the employer – rather than the employee – bears the costs have a stronger social impact. What we found is that EWA initiatives typically serve a mix of clients in both models where the employer pays and the employee pays others. Broadly speaking, EWA initiatives aim to improve employee welfare and A retention tool is to ensure its value. For accounts starting on an employee fee model, employers will gain a better understanding of how EWA can improve employee productivity and retention over time. This will be a key driver in encouraging employers to pay a fixed fee for each expense, ultimately allowing the bill to be converted to an employer fee model.
Despite concerns that EWA’s technology is replicable, Sia partner Aris Xenofontos believes EWA is a defensible business model because the moving parts are complex enough to prevent corporations from coming up with their own solutions.
“The technology is replicable. However, the pain of integrating with different payroll systems, and the credit/balance sheet side of the business, makes it difficult for a large company to do this in-house. We don’t see in-house development as a big competitor here.”
Read the full survey to find out in which sectors wage access is popular, what investors are looking for in EWA startups, and the best way to pitch them.
