Spiralling demand was behind the recent fundraise by South African fintech startup SmartWage, which partners with companies to give employees instant access to their earned salaries and wages.
Co-founded by Simon Ellis, Alex Platt and Nick Platt in 2019, SmartWage launched operations in February. The startup allows companies to provide their employees with instant access to a percentage of their salaries and wages for work they have already done.
The solution is free to employers, causes no disruption to existing processes, protects a company’s cash flow and reduces administrative hassle. Employees can communicate directly with SmartWage’s WhatsApp chatbot to securely request and receive advances on their earned pay.
“This prevents the need for employees to resort to expensive payday loans, microloans or unscrupulous loan sharks when they have unexpected or emergency expenses, or simply need a safe, easy and debt-free way to make it to payday,” Platt told Disrupt Africa.
Simple but effective, and immediately very popular. Since its official launch in February, SmartWage has had 100 per cent repeat business and received good feedback.
“We are now in a position where we have been approached by more employers than we can handle and so are trying to work out how to deal with this,” Platt said.
One way of dealing with it is raising funding, and SmartWage did that last month, raising ZAR6 million (US$347,000) in a round led by Chris Lister-James from Johannesburg-based seed investor FiTech Ventures.
“We are experiencing significantly increasing month-on-month demand and are allocating a lot of the new funding to bolster our technological and customer service capabilities to ensure we keep pace,” said Platt.
Why is the solution so popular? South Africa is suffering from a personal debt crisis, with almost ZAR1.7 trillion (US$100 billion) of consumer debt and the average South African spending approximately 15 cents on every Rand they earn servicing their debt.
“On top of this, payday lenders and predatory loan sharks exploit consumers when they are at their most vulnerable – charging exorbitant fees and dangerously high interest rates, fuelling debt spirals,” said Platt.
“We are up to nine times cheaper than regulated payday lenders and comparatively far cheaper than loan sharks or mashonisas. We wanted to create and offer a much cheaper and safer alternative that measurably improves the financial health and security of our customers, all via providing businesses with a powerful way to reduce their administrative hassle and improve their productivity.”
The solution is available only in South Africa for now, But Platt said SmartWage has big ambitions to expand across the continent.
“However, we don’t plan to expand until we are 100 per cent happy with the product we build and the solution we deliver here in South Africa,” he said.
“The nice thing about the model is that it is revenue-generating from day one, by charging a very small transaction fee for users to access their earned pay. We are very much at the early stage, but are growing quickly, given we are only essentially five months into the business.”
All of this in spite of the COVID-19 crisis, which Platt describes as “obviously a massive curveball coinciding with our launch”.
“Most companies were in crisis mode and less open to taking on board new offerings like SmartWage. However, usage by our existing customers remains encouraging and we are still growing our base every day,” he said.
“We also truly believe that what we’re offering is exactly what businesses and their employees need at a time like this, to make sure that companies can focus on what’s important to keeping their business going while also offering their staff a service that helps them to manage their finances more comfortably, plan responsibly and incur unexpected or emergency costs without compromising themselves financially.”