Salary, a fintech from Indonesia, has made a name for itself with access to earned wages: a way for workers in Southeast Asian countries to receive salary advances without resorting to higher-interest loans. With half a million people now using the platform, the startup has expanded this business into a broader “financial wellness” platform, and to give that effort an extra boost, the company has now raised $23 million.
The news is particularly notable given the funding woes Indonesian startups have faced over the past two years, highlighting how developing countries have been hit even harder than developed markets in the current tech bear market. The Financial Services Authority of Indonesia January said startup funding in Indonesia fell 87 percent in 2023 compared to a year earlier, to $400 million from $3.3 billion.
This financial pressure is not exclusive to startups: ordinary people are under even greater pressure.
While consumption of goods and services has increased significantly, wage growth across all sectors has not been sustained. Workers are looking for solutions, including credit to cover their needs between fixed pay cycles.
But access to credit is not universal.
Millions of workers are underbanked and have no credit history. In some cases, such workers are forced to find alternatives, which may be finding work that pays wages over a shorter period than a traditional one-month pay cycle. This results in a higher attrition rate for employers. Likewise, workers who cannot borrow money from a bank or financial institution in an emergency are often trapped by moneylenders, who charge exorbitant interest rates and engage in predatory practices. Unsurprisingly, access to earned wages has been held up by global banking institutions such as JP Morgan as a financial panacea: it is important for both employees and employers.
The concept of accessing earned wages is widespread among companies in developed markets such as the US and the UK — especially after the COVID-19 pandemic affected jobs and household incomes for many people. In 2022, Walmart got earned salary access provider Still to offer access to timely salaries to its employees. Other major US companies, including Amazon, McDonald’s and Uber, also offer employees early pay access programs.
Jakarta-based Wagely brought this model to Indonesia in 2020 and entered Bangladesh in 2021. The startup believes that offering access to earned wages in these markets is still vital, as 75% of Asian workers live paycheck to paycheck and have significantly lower wages than their counterparts in the US and other developed countries.
Image Credits: Salary
“We work with companies to give their employees a way to withdraw their paychecks any day of the month,” Kevin Hausburg, co-founder and CEO of Wagely, said in an interview.
Like other earned salary access providers, Wagely charges a nominal flat membership fee to employees who withdraw their salaries early.
Hausburg told TechCrunch that the fee, which he describes as a “salary ATM fee,” generally remains between $1 and $2.50, depending on the partial salary workers withdraw, as well as their location and financial well-being.
Wagely, which has about 100 employees, with about 60 in Indonesia and the remaining 40 in Bangladesh, has disbursed more than $25 million in wages in 2023 alone through nearly one million transactions and serving 500,000 workers.
Since its last round of funding announced in March 2022, the startup, the founder said, has seen revenue grow roughly fivefold and business triple from last year, without disclosing details. This revenue comes solely from the membership fee the startup charges employees. However, it is still burning cash.
“We do cash because it’s a volume game,” Hausburg said. “However, the margins and the business model itself are sustainable at scale.”
While Wagely was the early earner access provider in Southeast Asia, the region has added some new players. This means the startup has some competition. Also, there are global companies with the potential to take over Wagely by entering Indonesia and Bangladesh over time.
However, Hausburg said the convenience makes the startup a distinct player. It takes three taps from downloading the Wagely app or accessing its website through a browser to having money in your bank account, the founder said.
“This is something that no other competitor is even close to because other paid access companies are focusing on different things,” he said.
One of the areas where global payday access providers have shifted their focus these days is lending — in some cases, to lend money to employers. Some platforms also include ads to generate revenue by offering different products that they sell to employees. But Hausburg said the startup didn’t bundle itself with ads or other services that didn’t make sense for the workers it serves.
“Focus on what your customers need. Don’t get distracted and try to optimize for short-term revenue,” he noted.
Wagely’s business model operates on economies of scale. That is, to become profitable, it must expand from half a million people to many millions.
With Capria Ventures leading this latest round, the startup plans to use the funding to go deeper into Indonesia and Bangladesh, expand into financial services including savings and insurance, and explore AI-based genetic use cases. intelligence, including automated document processing and local chat interfaces for workers.
Recently, Wagely partnered with commercial bank Mutual Trust Bank of Bangladesh and Visa to launch a prepaid salary card for employees in the country, which has a smartphone penetration rate of around 40%, but a vast infrastructure for card and ATM payments . It is eyeing other Asian countries but has no immediate plans to enter new markets anytime soon, the founder said.
Wagely would not disclose the amount of debt versus equity in this round, but confirmed it is a mix of the two. The debt portion will be used specifically to finance salary disbursements. It was also the first time the startup, which received a total of about $15 million in equity before this funding round, raised debt.
“It’s not sustainable to grow the business on equity alone, especially because we pay salaries to employees upfront, and the only way you can build this business sustainably is to have a very strong partner on the debt side that provides you with capital . And now was the time,” Hausburg told TechCrunch.
Employers do not provide salary advances themselves. Instead, they return to Wagely the amount paid to workers at the end of the pay cycle. This requires the startup to maintain sufficient reserve to cover advances for employees registered on the platform. The startup conducts “rigorous vetting” on partner employers and works with publicly traded and well-compliant, reputable private companies to mitigate the risk of non-repayment by employers of advance wages provided to workers after the pay cycle is completed.
“The Wagely team has demonstrated outstanding performance with impressive growth providing a sustainable and beneficial financial solution for underserved employees and employers,” said Dave Richards, managing partner, Capria Ventures, in a prepared statement.
