How access to earned wages can mark the end of predatory lending

Can you handle an unexpected expense with your salary?

According to a recent study by E&Y, only 29% of urban Indians said they are able to meet unexpected expenses with their salary, while the majority still live paycheck to paycheck.

This essentially points to gaps in financial resilience in the context of the pandemic, larger in emerging economies than in developed ones.


To make ends meet between paychecks, many are looking for other financing options, turning to friends and family loans and high-interest payday loans. A more cost effective liquidity reserve alternative has since emerged in the form of Earned Wage Access (EWA).

Let’s see how the solution can enable overall financial well-being.

Do we really understand payday loans?

Globally, payday loans have become synonymous with predatory and high-risk lending.

These are short term unsecured loans of around 2-4 weeks, just long enough to cover expenses until the next payday; the catch being astronomically high interest rates that average over 400% APR (annual percentage rate).

In India, interest rates for payday loans can reach 2% per day. The number by itself may not seem that big, but the APR can range from 36-730%, depending on the term of the loan. On the other hand, APRs for regulated credit systems like loans and credit cards are usually between 12 and 30%.

To put this into perspective, if you borrow Rs. 10,000 at 2% interest per day, you end up paying Rs. 2,000 in interest over 10 days, along with the principal amount. For people who are already struggling to make ends meet, predatory lending pushes them into a vicious and inescapable cycle of debt.

The E&Y study, cited earlier, also notes that people earning less than Rs. 15,000 are six times more likely to get into serious debt.

Regulators around the world are stepping up measures to limit the impact of high-risk loans. The Reserve Bank of India (RBI), for example, is working on an anti-predation lending policy.

Despite these measures, the unsecured loan industry is booming, which intensifies the financial distress of ordinary Indians.

Payday loan interest rates in India can reach 2% per day.

Earned Wage Access – Affordable Alternative

By freeing employees and employers from the traditional compensation cycle, access to earned wages helps disrupt predatory lending models. Earned Wage Access (EWA) or On-Demand Pay empowers individuals by giving them access to a portion of their earned but unpaid wages anytime before their payday.


The same allows employees to collect their earned salary instead of relying on short-term loans to comfortably cover unexpected mid-month expenses. It makes earned pay available to employees in real time and on demand, giving them instant access to cash available any time of the month. By paying only nominal transaction fees (i.e. a fraction of the interest on payday loans), access to earned wages can pave the way to financial stability.

Small steps, big gains

When implemented correctly, the benefits of Earned Wage Access are obvious. Research indicates that nearly 43% of paid access users are able to cover all their expenses with their monthly salary, and one in two users are optimistic about their financial situation.

Additionally, EWA is an employer-backed initiative – the solution is generally free to employers and has no impact on their cash flow. This unique feature not only allows organizations to contribute to the financial well-being of the entire workforce, but by breaking the compensation cycle, employers are ensuring that employees can build financial resilience.

Greater financial freedom

As companies around the world pay more attention to the needs of their employees and use technology to find solutions, “access to earned wages” is poised to become a popular and valuable product for modernizing the good. – being financial employees. By adding on-demand functionality to everyday life, access to earned wages can dramatically transform the landscape of financial freedom for Indians.

The author is CEO and co-founder, Refyne

(Disclaimer: The opinions expressed are those of the authors and Outlook Money does not necessarily endorse them. Outlook Money will not be liable for damages caused to any person/organization directly or indirectly.)

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