Grace Ashiru
Local startups are striving to position Uganda as a leader in the emerging trend of employers enabling employees to receive on-demand payments, irrespective of traditional payday schedules. This trend is gaining momentum across the continent.
In a notable collaboration, Ugandan startup Thiqa Digital Finance and South Africa’s Paymenow are joining forces to introduce earned wage access (EWA) solutions to Uganda’s government employees. This initiative represents a significant step towards empowering workers and transforming financial services in the region. The partnership places Uganda among the pioneers in the EWA space and highlights the broader landscape of fintech innovation across Africa.
Earned Wage Access (EWA), also known as ‘on-demand pay’ or ‘salary on-demand,’ fundamentally changes the traditional pay cycle by allowing employees to access a portion of their earned wages before the usual monthly payday. Typically, EWA providers handle payroll for employer clients and generate revenue through fees.
The collaboration, as announced in a press release shared with WT, aims to tackle the liquidity gap experienced by Ugandan workers between paydays, providing them with enhanced financial flexibility and stability.
Danielle Lavan, CEO of Thiqa, expressed her optimism about the partnership, stating, “By collaborating with Paymenow, we are introducing their direct payroll integration solution to Ugandan government employees. This will help them bridge the gap between paydays and manage unexpected expenses. What Paymenow has achieved in Southern Africa – amassing a customer base of over half a million users – is remarkable, and we look forward to replicating this success and making a significant impact in Uganda.”
Leveraging the combined power of Thiqa’s Islamic finance platform and Paymenow’s Earned Wage Access (EWA) solution, Ugandan civil service employees are now being offered enhanced control over their finances. By essentially turning every day into payday, this initiative aims to alleviate the financial stress imposed by the inflexibilities of conventional payroll systems, making the goal of financial relief more attainable.
The ‘pay-as-you-work’ generation
Workers often face constraints due to limited access to credit and cumbersome banking processes, but they can benefit greatly from the convenience and flexibility offered by Earned Wage Access (EWA) solutions. By providing timely access to earned wages, EWA not only meets immediate financial needs but also promotes a culture of financial resilience and empowerment among workers.
The need for EWA in Uganda and other regions arises from the challenges many workers encounter in obtaining timely and affordable credit. Traditional financial institutions frequently impose cumbersome procedures, while payday lenders charge exorbitant interest rates, leaving employees with few options to address their immediate financial needs.
As a result, EWA has significant potential in the African labor market, with the liquidity gap between paychecks representing a remarkable USD 30 billion funding opportunity across Africa each month. This was underscored by Chikodi Ukaiwe, Founder/CEO of Nigerian EWA platform Salad, in a 2022 conversation with Afridigest.
EWA offers a practical solution by providing quick and convenient access to earned wages without the burden of high fees or long wait times. This service is a lifeline for workers dealing with unexpected expenses or cash flow issues. Stakeholders believe that it can improve worker welfare and retention, ultimately enhancing productivity.
Opportunity vs Obstacle
Nevertheless, the journey to widespread adoption of Earned Wage Access (EWA) in Africa faces considerable hurdles. The continent grapples with low financial literacy rates and intricate regulatory environments, creating significant obstacles for EWA providers aiming to expand their operations. Companies like Thiqa and Paymenow must adeptly navigate these challenges, ensuring they comply with regulatory frameworks while protecting consumer interests.
Despite these difficulties, the future of EWA in Africa appears bright, fueled by the continent’s thriving fintech ecosystem and an increasing demand for innovative financial solutions.
Other key players in the EWA sector, such as Pade, SeamlessHR, and Earnipay in Nigeria; Khazna and Nowpay in Egypt; Floatpays and Jem (formerly SmartWage) in South Africa; and Kenya’s WorkPay, are at the forefront of this movement. These startups leverage technology to unlock what is colloquially known in some circles as ‘streaming salary.’
Encouraging signs are emerging. Pade, a Nigerian HRtech startup that announced a USD 500K pre-seed in February, assisted over 100 African businesses in processing more than NGN 11 billion in payroll in 2023. According to its Year-in-Review, NGN 3.07 million in Earned Wage Access (EWA) was disbursed in Q4, managing over 10,000 employee profiles.
What workers don’t know they need
EWA in Africa offers both opportunities and challenges. Despite the latent demand due to the liquidity gap between paychecks, providers struggle with converting reluctant targets.
A November 2023 survey by TechCabal of 101 individuals highlights this reluctance, with the majority (70.6%) of employees preferring to receive their salaries at the end of the month rather than request portions of their earned wages on a weekly or daily basis. Concerns also exist about the potential for enabling impulsive spending. Addressing these sentiments requires effort.
Additionally, while EWA can enhance employee retention and productivity, some employers view it as a “desirable but non-critical offering,” and doubts persist about the viability of a solution that seems more driven by providers than demanded by consumers.
The future of Earned Wage Access (EWA) platforms raises questions about their business models and differentiation. Insiders believe that long-term success might hinge on addressing affordability, developing innovative distribution strategies, commodifying data, and bundling EWA with complementary services.
Some EWA platforms are already evolving into comprehensive HR or financial services providers. The transitions of companies like Khazna in Egypt and Smartwage in South Africa provide insights into the future. As the market continues to evolve, adaptation and innovation seem crucial for success in the emerging EWA landscape across Africa.
With Thiqa and Paymenow now leading the charge in Uganda, on-demand pay presents a compelling opportunity to drive meaningful change and foster economic growth.
Paymenow’s Group CEO, Deon Nobrega, emphasizes the transformative impact of EWA on individuals’ financial well-being. “The traditional monthly pay cycle often leaves employees unable to cover emergencies or seize immediate financial opportunities,” Nobrega remarked. “With our EWA technology, users gain early access to their earned wages, enabling them to address pressing financial needs.”
