How Fintech Can Revolutionize The Way We Get Paid (And Thus Contribute To Economic Growth)
By giving people access to their earned income (both salary and commissions), and potentially giving them access to pensions or end of service funds whenever needed, we could create a knock-on effect that could transform the local and global economy.
When you ask people what they love about their company, the answer will range from everything like the company culture and the free fruit bowl in the office, to the discounted gym memberships they get and the funky coffee machine in the pantry. However, what they rarely mention is that financial wellness is a top priority- and that goes beyond receiving a decent salary. It genuinely means financial security, and the ability to access your salary when you need it the most.
A YouGov study in the UAE published in March 2020 showed that a third of UAE residents have a target of feeling financially secure, and yet only 20% have a target of building an emergency fund or paying off debt. During the same month, UAE newspaper Khaleej Times asked readers: “Does your employer in the UAE pay your salary on time?” Worryingly, over 27% said they were not being paid on time, which does not marry with the goals of feeling financially secure.
We have all had a rough start to 2020, with global events causing a lot of economic uncertainty to say the least. It’s understandable that a number of businesses will struggle to pay salaries on time, but where does this leave employees? It will take some time for landlords and banks to catch up, and cut people some slack. However, this time lag can be circumvented if you can access part of your already earned salary, quickly and smoothly.
Having been in the UAE for nearly two decades I can tell you that this topic is not new. We read about late salaries in the newspapers all the time, but I want to discuss it from a different angle: accessing earned income. Having your income at your fingertips. Accessing it via your mobile whenever you need it. This is what my company, FlexxPay, does. FlexxPay allows employees to access a portion of their already earned salary and commission before their regular payday. When a company signs up with FlexxPay, all of their employees are automatically eligible to use our technology platform, and this becomes a type of employee benefit.
The advantage for employees of being able to access their earned income whenever they need to, be it for emergencies or unplanned expenses, needs no explanation. However, with FlexxPay, the employer actually benefits as well, by removing workload from HR and finance teams who will no longer have to deal with salary advance requests. Increased productivity and retention rates and no running costs are other key factors why employers are eager to sign up with FlexxPay.
I am convinced that in a few years from now, people will be able to access their earned income whenever they want to. There is no reason why employees should be forced to provide employers with an interest free loan (working every day, but getting paid only at the end of the month). Let them access their earned income that they have worked for, whenever they choose to. Companies such as FlexxPay are needed to disrupt the traditional monthly payment cycle.
What many people don’t realize is the positive effect that this has on overall economic growth. Imagine a country where everyone has access to a solution such as FlexxPay. People would access their earned income at various times during the month (instead of once at the end of the month). This money would be injected into the economy, and be “put to work” immediately.
Injecting US$10 into the economy 10 times over the course of a month has much greater value than a one-time injection of $100. Why so? Without getting too technical, the reason is the money multiplier. Banks take deposits, but only have to keep a certain percentage as a reserve decided by the central bank. The rest of the money can be used for loans among other things.
Here is a simple example: Abeer receives $100. She brings this money to her bank. The bank has to keep 10% as a reserve. The bank can now take $90 of the $100, and lend it to Laith. $10 must be kept as a reserve by the bank. Laith uses $40 to make retail purchases, and deposits the remaining $50 with his own bank. His bank now gives $45 to Vineet, and keeps $5 (10%) as a reserve. This means that there is now $90 + $45 = $135 in circulation, created from the original $100 that Abeer received. In the meantime, other money is also put to work- like the $40 that Laith spent.
This is the money multiplier effect in a nutshell. This is how fiscal stimulus works, and how central banks control the money circulation. Now, imagine a country where everyone has a solution like FlexxPay. Employees would inject their earned income regularly into the economy. Money would be multiplied (the money multiplier effect), and the overall economy would benefit. This is the vision we have at FlexxPay. We have started in the UAE and KSA, but envisage making FlexxPay a truly global company.
Employees, employers, and the overall economy will benefit from this type of increased money in circulation, particularly in the current climate. Reduced economic growth and reduced spending is something we will see in the global economy over the coming months. By giving people access to their earned income (both salary and commissions), and potentially giving them access to pensions or end of service funds whenever needed, we could create a knock-on effect that could transform the local and global economy, and help us overcome the challenges the coming years might bring.