The cost-of-living crisis has spawned a financial services subsector that gives South Africans access to a portion of their salary before payday.
In recent years, the earned-wages access sector has hooked employers with a solution that allows staff facing a financial emergency to draw some of their pay in advance, redefining the “archaic” once-a-month payment system in the labour market.
The CEO and founder of Paymenow, Deon Nobrega, told Business Times that the model allowed employees to access the portion of the wages that they have already earned.
“When financial emergencies occur intra-month, a lot of South Africans don’t have access to solutions... We integrate with payroll to give them access to 20%-25% of their salary in the middle of the month.”
Paymenow has expanded from just 35 users when it launched in 2019 to serving nearly 500,000 South Africans now. Co-founders were Gerrie Potgieter, Willem van Zyl and rugby legend Brian Habana.
The biggest disconnect that we are trying to solve is that archaically, or legacy-wise, people are paid monthly and that is just because it’s so convenient for the employer … from an administrative perspective [and] from a cash-flow perspective
— Deon Nobrega, Paymenow CEO
Nobrega said Paymenow generated revenue by charging fees for each transaction but ensured that the fees were less than it would cost an employee to take out a loan.
Companies that have signed up include Shoprite, Pick n Pay, Boxer, Foschini, Food Lovers Market, Massmart, Pep, Fidelity, Bidvest Prestige, Servest, Empact Group, Seriti and Bidvest McCarthy.
Nobrega said the high cost of living made Paymenow a natural solution.
“South Africans don’t earn as much as [their counterparts in the] developed markets. The cost-of-living crisis is real. The fact that people are spending 30% upwards of their monthly income just for transport is shocking. It is really a sad state.”
He said the traditional practice in South Africa of paying staff once a month — in the US, for example, most people were paid weekly or fortnightly — did not cater to changing financial realities.
“The biggest disconnect that we are trying to solve is that archaically, or legacy-wise, people are paid monthly and that is just because it’s so convenient for the employer … from an administrative perspective [and] from a cash-flow perspective. We’ve ended up in this cycle of monthly [pay].”
Jem HR is another company offering an access-to-earned-pay service. Its clients include Tiger Wheel & Tyre, KFC, Swissport, Seattle Coffee, Atlas Security, Defy, Capitol Caterers, Edgars and Leroy Merlin.
“[Up to] 75% of South Africa’s employed population works on the front line, not at desks. Despite being in the majority, they’ve been overlooked by technology providers, with only 1% of enterprise tech being built for them,” said Jem HR’s founder and CEO, Simon Ellis.
Chris Blair, CFO of remuneration and HR consultancy group 21st Century, said the companies such as Jem HR and Paymenow offered “a compelling proposition” for both employers and employees.
“The big advantage... is that it’s in the control of the employee, if done properly. It’s very flexible… Normally, we co-agree a policy where the employee can access the wages they earned, or a portion, in four drawdowns a month, which would make it like a weekly wage.”
Staff at all income levels needed the service, Blair said.
“People are living hand-to-mouth because of the cost of living. If they have an emergency expense, like your child gets sick, you can get on a platform and you can afford it because it’s your wages, and you won’t have to take on debt.”
The South African Reserve Bank’s bulletin for the final quarter of 2024, issued last month, said household debt as a percentage of nominal disposable income declined to 62.0% from 62.4% the previous quarter.
“The increase in household disposable income exceeded that in household debt,” the report said.
“Households’ cost of servicing debt relative to disposable income decreased marginally from 9.1% to 8.9% over the same period, reflecting the slower pace of increase in the stock of debt as well as lower interest payments following the further 25 basis point reduction in the prime lending rate in November 2024.”
The bulletin said households’ net wealth rose in the fourth quarter of 2024, albeit at a slower pace, as the market value of total assets increased slightly more than that of total liabilities.
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