Q1
2021

Earned Wage Access Impact Assessment – Feb 2021

Published , reporting on data up to 30 November 2020

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Key Highlights

  1. Those who choose to make Earned Wage Access (EWA) transfers are transferring 26% of their gross salary in any given month, which equates to roughly 50% of what is available for them to transfer in that period. Meanwhile 62% of users each month are not making any transfers at all, and are choosing to use the app for tracking purposes only.

  2. Since the start of the Covid-19 pandemic we have seen many users choose to make smaller transfers more often. We believe that this trend is symptomatic of the uncertain macro environment created by the ongoing pandemic. Additionally we have seen a larger proportion of transfers being made to cover essential items such as groceries and bills than was previously the case.

  3. Data suggests that, on average, EWA transfers reduce when someone has continued access to the product. Within 12 months of making their first transfer, the average user is making fewer transfers each month, transferring a smaller percentage of their pay and is doing so at a later stage in the paycycle than when they first started using the product.

  4. Wagestream users who had previously relied on short-term, high-cost credit products reported a significant reduction in the use of these products after joining Wagestream. Of users who had previously used payday loans, 88% reported a decrease in the use of such loans due to Wagestream. Comparable figures for credit cards and overdrafts were reductions of 39% and 31% respectively.

  5. A majority of users feel that EWA has had a positive impact on their finances, with 72% feeling more in control of their finances and 55% claiming an improvement in their ability to plan their finances since downloading the app. Furthermore, 61% claim their quality of life has improved as a result of using Wagestream.

Preface and Methodology

This impact assessment is based on data and analysis provided by Wagestream – the UK’s largest provider of Earned Wage Access (EWA), also referred to as Employer Salary Advance Schemes (ESAS).

EWA is the process that allows workers to receive a percentage of their pay, as they earn it, throughout the month, rather than being locked into the traditional pay cycle. As part of a growing trend in workplace financial services, EWA is designed to give workers greater control of their money and boost their financial resilience. .

This report was published in February 2021, and is based primarily on a sample of approximately 1,000,000 transactions between 1st June, 2020 and 30th November, 2020. Using this data we explore how Wagestream’sEWA product is used, how this has changed over time, and most importantly, what impact this has had on workers.

To answer this last point, we look at how usage changes the longer an employee has access to EWA, as well as how the workers themselves perceive the impact that EWA has had on their lives. In summary, we see decreased EWA usage over time, and strong indicators that the product is having a positive impact on its users’ finances, including a significant decrease in the use of short-term, high-cost credit. 

Wagestream was founded with a social charter at its heart, with early charity backers including Big Society Capital, Fair by Design, Barrow Cadbury Trust and the Joseph Rowntree Foundation. Built with the guidance of these partners, every Wagestream product is designed to improve the financial wellbeing of people in work – with financial services that give, not take. We take our role as the leading EWA provider seriously, and aim to help the industry analyse and share the impact of EWA on workers, with transparency and regularity.

Every six months, we will publish this Impact Assessment to share the impact that EWA is having on workers’ financial lives. As part of this, we welcome input from the wider industry on the impact assessment methodology and how the findings can be used to ensure EWA supports the wellbeing of people in work.

EWA Usage and Impact

Wagestream allows employees to track and access their wages in real time to help them budget and manage unexpected expenses. At any one time, up to 50% of these accrued gross earnings are available to transfer through the app.

The employee selects the amount that they would like to transfer to their bank account and the money is then sent using Faster Payments. We will refer to this as an ‘Earned Wage Access Transfer’, and it is the use of this product that this report concerns.

The Wagestream app also offers other financial tools to its users including the ability to track the shifts they’ve worked, save directly from their salary and access to financial fitness tools and impartial education.

Whilst we will not explicitly discuss these functions, a significant proportion of users do not make any EWA transfers, and instead use the app exclusively for these other features.

1. How is the ‘Earned Wage Access’ product used?

a. How often do employees make EWA transfers?

The majority of enrolled users are using the app for tracking purposes only, with 62% making no transfers in a given paycycle. 

20% of enrolled users are choosing to transfer less than once per week, allowing them to roughly replicate the cadence of weekly pay. 

9% of enrolled users make more frequent transfers, resulting in 7 or more transfers in a given pay period (roughly two transfers per week). Since the start of the Covid-19 pandemic we have seen this subset of users grow as users choose to transfer smaller amounts more often1. We believe that this change is a symptom of the difficult and uncertain macro environment created by the ongoing pandemic. 

The Wagestream app allows companies and users to set usage controls, and users receive targeted in-app notifications to remind them of the fees associated with repeat transfers.

b. How much do employees transfer?

Wagestream allows employees to transfer up to 50% of their accrued gross wages. Their available balance increases as shifts are completed, and it reduces whenever a transfer is made. 

The amount an employee chooses to transfer is governed by two things:

  1. The amount that they wish to transfer to their bank account (e.g. to cover a specific expense or need), and
  2. The amount they have available to transfer at that time 

The second of these points is important, since the amount available to transfer decreases each time a transfer is made. Therefore those who transfer larger amounts will, by design, be unable to transfer as frequently as those who transfer smaller amounts (assuming their overall earnings are similar).

This unavoidably skews the graph above to the lower amounts, and provides useful context to the 62% of transfers that are for less than £50. Overall the average transfer amount is £582

To remove this nuance, consider instead the total amount that an employee transfers each month as a percentage of their salary.3

Again we see that 62% of enrolled users are opting not to stream within a given month. 

Those that do choose to make a transfer are transferring 26% of their gross salary on average, which represents roughly half of what they could have transferred in that pay period. 

2. Does usage increase over time?

Whilst it is insightful to look at high level metrics concerning product usage, if we are truly to understand the impact that Wagestream is having on the financial resilience of its users we need to monitor whether usage changes as an employee continues to use Wagestream from one month to the next. Crucially we want to understand if employees use the product more or less the longer they have access to it.

To do this consider distinct points in the customer journey: the month that they make their first transfer, and then regular 3 month intervals after that4. At each of these points in time, consider how often employees make transfers, how much they are transferring, and when in the paycycle they are making these transfers. For each of these metrics we will look at how the average changes over the first 12 months of the customer journey. 

a. Do employees transfer more often over time?

In the month of their very first EWA transfer, the median employee makes a total of two transfers. Just 6 months later the median has decreased to one transfer per month.

In other words, after 6 months of using Wagestream 50% of users are now making at most one transfer per month, whereas previously they were making two. This suggests that monthly transfers are starting to reduce for a majority of users by the end of their first year. 

b. Do employees transfer larger amounts over time?

To remove the nuances discussed earlier, we will consider the amount that an employee transfers in a given month as a % of their gross salary.5

In the month of their first Wagestream transfer, employees transfer an average of 22% of their gross salary. 12 months later this has reduced to 13% of their gross salary. 

This trend towards lower amounts over time is encouraging as it implies that employees may be improving their financial situation through access to Wagestream. This will be discussed in greater detail in the last section of this report. 

c. Do employees transfer earlier in the paycycle over time?

For each employee we look at the first transfer they make in a given pay cycle, and record how many days before payday that transfer occurred6. This allows us to gauge whether users are accessing their salary earlier or later from one month to the next.

In month 0 users make their first transfer at an average of 9 days before payday. By the end of their first year this has reduced to 8 days before payday. This suggests that, on average employees are waiting slightly longer each month before choosing to access their earned wages. 

In summary, within a year of making their first transfer employees are, on average, transferring lower amounts, less often, and at later stages in the pay cycle than they were originally. 

3. What do employees spend their transfers on?

Following each transfer, employees are asked to pick one of eight categories to identify why they made that transfer. The results are the following:

Over half of transfers are for ‘bills’ and ‘groceries’, with ‘fun’ and ‘holidays’ making up less than 10%. 

Generally users are extremely consistent in how they characterize their transfers from one month to the next, but the start of the Covid-19 pandemic in late March 2020 saw a material increase in Groceries, and corresponding decreases in Expenses, Travel, Holidays and Fun. This is discussed in more detail in the appendix.

4. How does usage impact their personal finances?

This is the question that we at Wagestream most want to answer. We have discussed how the product is used and we have seen that usage generally decreases over time, but what we really want to know is how, or even if, the product has impacted our users’ lives and their personal finances. 

Impact can be a difficult thing to measure, and at Wagestream we are continuously working to find improved ways to evaluate progress in this area. In this report we will discuss results from recently conducted surveys where our users report on the impact Wagestream has had on their lives.

Ideally we would like to corroborate these findings with evidence-based proof that our users’ lives have indeed improved in the way that they state. In the future we hope to be able to use insights derived from our open banking portal to do just this, but we do not yet have enough data to share our findings. Please bear with us on this, and in the meantime we will discuss the perceived impact that Wagestream has had on its users.7

In this report we narrow our attention to two specific areas of impact: the impact on use of short-term, high-cost credit products (such as payday loans), and the impact on the financial resilience of our users.

a. Has access to Wagestream impacted the use of short-term, high-cost credit products?

To report on this question we asked users how their use of various credit products had changed since using Wagestream. The survey was conducted in Q4 2020 and was completed by 980 respondents, all of whom had enrolled with Wagestream 3 months prior to taking the survey.

We asked the following questions

  1. Have you used payday loans more or less since Wagestream?
  2. Have you used your credit card more or less since Wagestream?
  3. Have you used your overdraft more or less since Wagestream?

23% of respondents say they use payday loans less than they did before enrolling with Wagestream. However, given that 74% of respondents had never used payday loans prior to Wagestream, our results imply that Wagestream has reduced payday loan usage for 88% of those that have previously relied on this as a source of credit.

Again the results show a positive impact with 21% of respondents using their credit card less often and 16% using their overdraft less since joining Wagestream. This equates to a 39% and 31% decrease in usage for those that previously relied on credit cards and overdrafts respectively.

b. Has Wagestream helped its users to become more financially resilient?

To monitor this area of impact we partnered with 60 Decibels, an independent impact measurement agency. The survey was conducted in June 2020 with 1,240 respondents.

Survey responses suggest that respondents feel overwhelmingly positive about the impact that Wagestream has had on their lives across a range of financial resilience indicators.

55% of respondents reported improvements to their ability to plan their finances due to Wagestream, 61% claimed their quality of life had improved, and 72% felt more in control of their finances as a result of using Wagestream. Furthermore only a small subset of respondents felt that Wagestream had worsened their outlook regarding any of these indicators.

Afterword

We note the final report of the Woolard Review has been released, which also addressed EWA products (referred to as Earned Salary Advance Schemes, or ESAS, in the report).

Wagestream was fortunate to be able to participate in the review and provide product and usage analytical data to the Review Panel.

This impact assessment is not a direct response to that review or the resulting report. Needless to say Wagestream follows regulatory developments closely and is wholeheartedly committed to operating a transparent EWA platform that is beneficial to the user and fully respects the FCA’s business principles and focus on consumer well-being.

We look forward to working with the FCA to develop a code of conduct that all major employers can adhere to when choosing a provider.

Appendix

Impact of Covid-19 on Transfers

Prior to the Covid-19 pandemic users were extremely consistent in how they characterized their transfers from month to month. But this changed almost overnight as the UK went into lockdown in late March 2020.

Between February and April 2020 we saw a material increase in transfers for “Groceries” (16% → 29%), and a material decrease in transfers for “Expenses”, “Travel”, “Holiday” and “Fun” (33% → 17%). It has been well documented that national lockdowns resulted in an overall change in spending habits, with more money spent at supermarkets, and less spent on commuting and holidays, and our data supports these findings.

This trend slowly reversed as lockdown restrictions eased, however transfers for “Groceries” remained significantly higher throughout 2020 then they were prior to the Covid-19 pandemic. Additionally we have recently seen the impact of the second national lockdown (implemented in November 2020) with transfers for “Bills” increasing from 32% → 37%.

References

  1. The average transfer amount for those making 7+ transfers per month is £36, whilst it is £105 and £66 for those making 1-3, and 4-6 transfers respectively.

  2. The change in usage discussed earlier (where users are choosing to transfer smaller amounts more often as a result of the pandemic) has led to a lower average transfer amount than was the case pre-pandemic.
  3. Gross salary is estimated by taking net salary and assuming standard English income tax deductions. It is possible that this underestimates an employees gross salary in situations where there are non-standard deductions on their payslip (e.g. student loan repayments), or where the employee has more than one job.
  4. These metrics exclude any employee who has enrolled less than 12 months ago to ensure that we are looking at the same set of users in month 0 as we are in month 12. For the same reason we have also excluded any employee who left their company within 12 months of their first transfer.
  5. For reasons discussed previously the gross salary figures may underestimate the gross salary of some users, hence the percentages in this graph may be slightly higher than in reality.
  6. If an employee does not make a transfer then they are assumed to have made their first ‘transfer’ on their payday (i.e. at 0 days until payday)
  7. Survey data has always been collected anonymously which prevents us from drawing conclusions on how survey responses correlate with the usage patterns discussed earlier. Moving forward, Wagestream will begin collecting non-anonymous survey data to better understand these correlations.