FCA statement on income streaming: Defining the category and developing the sector
Recently, the Financial Conduct Authority set out their views on the risks and benefits of Employer Salary Access Schemes (ESAS) and what employers and employees should consider when using them.
We welcome this publication and the formal recognition of Employer Salary Access Schemes by the FCA.
We will continue to share our learnings with the FCA and play an active part in ensuring that this new industry category develops responsibly and is beneficial to users.
The statement clarifies that income streaming is not a loan or any form of credit.
Importantly, it validates that access to earned wages can be fundamental as a means to provide employees with much needed liquidity and to ease cash flow problems.
The FCA statement was positive that income streaming, designed with improving the financial lives of employees as it’s guiding principle can become a core employee benefit and a powerful way for employers to support the financial resilience of their staff.
The FCA has identified some areas of caution and we’re proud that our platform has been built to address these areas, for both employee and employer.
Lack of credit regulation
The FCA lays out that, as ESAS are not a form of credit or loan, they are not subject to credit regulation. They outline that this means ESAS do not consider affordability, therefore employees would have to satisfy their own affordability.
Our data has shown that, by only providing access to a portion of money earned, employees are better able to manage their own affordability, therefore can better manage their finances.
93% of all users access less than 30% of their available wages, with available wages being capped at 50% of total income earned.
Through empowering the user to control their own cash flow, we have seen earned wage access being used responsibly and in a way that avoids employees going into debt, and having to pay punitive interest charges.
Controls on usage can be set at both employer and employee level.
Lack of transparency about cost
Here, the FCA outlines that there may be a lack of transparency around the cost of ESAS compared with other options and that over use may result in ESAS being less affordable than high-cost short-term credit (HCSTC).
We have always charged a transparent transaction fee of £1.75, regardless of the amount streamed, and do not charge interest. The number of transfers allowed are capped at 10 and we use in-app notifications to ensure that employees are fully aware of the fees involved.
99% of all users have consistent or decreasing use over consecutive months, demonstrating that the service is simply not being used in a way that would inflate the cost compared with HCSTC.
Across the platform, employees consistently reduce the number and size of transfers as their stress levels, financial resilience, and wellbeing improve.
Dependency and repeat use
The risk highlighted here is that employees may become dependent upon the service, potentially leading to repeat usage.
As previously outlined, we have only ever seen consistent or decreasing usage across the platform, with 99% of all users maintaining or reducing their transfers.
Consumer insights show us that employees take far greater responsibility with money they have earned than with credit products that may be available to them.
The average amount accessed has consistently stayed at £70. 43% of our users report having avoided turning to HCSTC such as payday lenders and 37% have avoided using their overdraft.
This shows earned wage access is a powerful tool to help employees avoid dependency on expensive credit, improving their financial situation overtime, therefore reducing the need to transfer wages.
Lack of visibility for credit reference agencies
As ESAS are not a form of credit, and therefore sit outside of credit regulation, credit reference agencies will not record the use of the product.
By only providing access to wages earned, employees are simply using the money they have earned, therefore this activity is not required to appear on a credit report.
Wagestream is provided on behalf of the employer and therefore any monies transferred between pay cycles enters the employee account in the employer’s name, just like normal pay would, and therefore has no adverse impact on proof of earnings.
What’s more, by helping users to avoid high cost forms of credit, which have an adverse impact on personal credit scores, we’re helping to improve their overall affordability and financial health over time.
We know that our products and services are helping our users to build a secure financial future, free of debt. It’s the reason we also built a savings program and financial educational tools into our platform.
Emma Steele, Investment Manager for the Fair By Design Fund, one of our founding charity partners, said:
‘As impact investors we work closely with the mission led businesses in our portfolio to make sure the impact is scaled in a positive way. Wagestream is one of the best case studies of a business providing true cashflow smoothing solutions to those households vulnerable to cashflow shocks. It is designed to bring people out of the cycle of debt by removing the need for debt altogether.
The key is to understand how organisations empower their employees whilst thinking of their financial vulnerability. Wagestream’s full product suite and the finer details reflect how Wagestream there to support employees long-term financial wellness’
Erik Porter, Founder & CEO of Cheddr, said:
‘It’s great to see the recent statement from the FCA reinforces the fact that ESAS are not a form of loan or credit. I have always believed that Wagestream is driven by a force for good and their solution satisfyingly addresses the areas of caution outlined by the FCA. I believe tools such as Wagestream, delivered by purpose driven organisations, can empower the financial lives of many working people and I look forward to seeing more and more organisations tap into the power of ESAS as part of their financial wellbeing strategy.’
We welcome the FCA statement and will continue to innovate and develop this sector to become a positive force for good for both employees and employers.
If you would like to understand more about Wagestream’s usage data, get in touch with our data team.