Have you ever been in a situation where you’re struggling to pay your bills or buy your favorite online shopping deal just because you haven’t received your salary yet?
With the average salary in Pakistan being Rs. 81,800 per month, less than the average salary in the US or even that in the Philippines or Ukraine, and the skyrocketing rate of inflation, 10.9 percent as compared to the 2-3% recommended, employees, are continuously finding themselves in severe financial strain. The employees most affected are those whose purchasing power is based on a fixed income and who live paycheck to paycheck.
Given the little to no savings, most employees rely heavily on the influx of cash on paydays to make ends meet.
Moreover, interest costs from borrowing money to cover unexpected expenses or fees from late bills or overdrawn accounts further contribute to the lack of savings. Instead, it pushes employees to face a range of financial and emotional consequences.
In addition to monthly payment cycles, it is also not uncommon in Pakistan to receive salaries a week or two after the payday. What’s worse is that sometimes, this issue goes even as far as workers not being paid for months, evidently a symptom of general economic distress due to currency devaluation, high inflation, and poverty.
An end to the “payday poverty cycle”
Wagestream, a UK-based FinTech, working on a ‘Get paid as you go’ model, used the term payday poverty cycle to describe the huge financial damage caused by monthly pay cycles to employees. While the issue is being recognized globally, Pakistan is not far behind.
ABHI, a Karachi-based company, has developed what they describe as Pakistan’s first financial wellness platform. What ABHI does is allow people to access their earned wages instantaneously with the belief that “if you work today, you get to be paid today.”
Partnering with more than 20 companies across Pakistan, this platform allows the staff of participating companies to gain access to a portion of their wages ahead of time, ensuring they don’t have to be reliant on high-interest payday loans.
What does ABHI do?
Without disrupting the cash flow of business and causing any fees to HR, ABHI offers financial relief to employees by allowing them to access their earned wages before their day of salary payment. Using a B2B2C business model, they mainly tie in with companies and use their employee base to provide their services to them. ABHI offers four ways in which the user can interact with the platform. These four ways include an app, a WhatsApp portal, a two-way SMS service, or a web portal. Using these various portals, the employees will be able to claim their earned salaries in less than 30 seconds. At the end of the month, the amount of money they requested earlier will be deducted from their salary.
In return, the way that ABHI generates revenue is through the transaction fee they charge either the employer or the employee. With no interest, this is a one-time transaction fee which constitutes a percentage of the overall transaction.
Will Employees Become Too Dependent?
“The research (on employee behaviour) is wrong,” says Omair Ansari. “We often tend to over intellectualize and at the same time belittle people, especially those who are in the poor segment to not know how to save or spend.”
A common assumption with advance payment schemes is that, if left unregulated, people become heavily reliant on early payments and barely save anything by the end of the month.
However, based on their own experience in Pakistan, the founders claim to not have seen people overuse it. According to them, if the limit is 10,000 Rupees, the average person is only taking out 10 or 20 percent of it. Less than 2 percent of their sample base is coming in and taking out 100 percent of their earned wages every time.
In addition to people being aware of their spending patterns, they also added how existing studies don’t take into account the cultural mindset of people in Pakistan. Ansari suggested that the reason why credit penetration in Pakistan is so low is not only because of the credit not being available but also because of people, culturally, not being very fond of debt. Ali Ladhubai, the co-founder of ABHI, further added by saying that ‘this is, in fact, a tool for people to financially plan better, and therefore, save as compared to falling into the debt trap.”
An “Educational Process” for Employees
In addition to learning how to save and spend their salaries on time, platforms, such as ABHI, are also shifting people towards learning and using digital tools. With more than 70 percent of our population not having bank accounts, therefore, no online banking options, fintech companies are on a mission to help people digitize their methods of paying and receiving cash.
Calling it an ‘education process,’ Ansari is optimistic that if employers endorse such platforms and people are encouraged to familiarize themselves with such tools, employees will eventually develop interest and trust in using these digital platforms. “When Careem first launched, nobody thought it was a good idea to get a car ride with strangers, but now, everyone uses Careem.”
What is in there for the Employers?
Omair Ansari, the founder of ABHI, said, “The reason why we do a B2B2C model is because we not only want to help the employees, but also the employers.” He refuted the assumption that business owners don’t usually pay on time because they are unethical or don’t care about their employees, “It is possible that they don’t have the cash because they’re having trouble due to their end-client not paying them on time.” This is where ABHI claims to jump in and not only give employees their salaries at times when they need it but also give employers payroll services and a buffer period to accumulate their revenues.
According to Ansari and Ladhubhai, the three incentives that companies have in partnering with ABHI include, “Riddance from Administrative annoyance by saving the time and energy the HR team puts into dealing with employee requests for advances salaries, financial relief for lessening the burden certain companies face in giving their employees advanced salaries and employee wellness, through which companies also enjoy increased loyalty and higher productivity.”
Advanced Salary Payment Schemes: A Friend or Foe?
While platforms such as ABHI offer an optimal solution to the problems raised by paycheck-to-paycheck salary payments, it is also equally important to keep a lookout on the consequences such alternative services may have. With limited financial literacy among people and fewer platforms that operate in the way described above, there is a threat of such platforms being either underused or misused. This is not to discourage the growth of such initiatives but to advocate for the need to have properly monitored and consistent regulatory measures for these financial services.
As Pakistan continues to explore this untapped market, it is essential to conduct further research on business processes, consumer behavior as well as cultural and economic context to better inform policies and initiatives for financial inclusion in the country.