Salary Finance has launched a new ‘Advance pay app’ offering employees up to 50 per cent of their salary in advance.
The company, co-founded by the former head of Google, is aiming to provide a lower cost alternative to pay day loans and overdraft fees.
Employees working for a company that offers the scheme can access these funds, although they will pay a fee for this service. This app can be paid via a monthly subscription (of £9.99) or a £2.99 fee for each withdrawal.
Salary Finance says research shows that financial shortfalls covered by payday loans and overdrafts happen 18 per cent more when there is a mismatch between the timing of someone’s income and the bills they owe.
Through Advance, an employee who has worked for at least a week with a qualifying company, can draw down up to 50 per cent of the money they’ve earned – which otherwise may not be available until the end of month.
Salary Finance co-founder Dan Cobley says: “We know that workers facing financial shortfall typically take small short-term loans at very high interest creating a cycle of in-work poverty as they struggle to pay off the growing interest on top of the original loan.”
He adds: “This is not a niche problem and recent research revealed 12 million people regularly run out of money between paydays. With banks shying away from this problem, many have no option but a payday loan, creating a huge issue in society.”
Salary Finance says part of the problem is the payday spending spree, with some workers finding it difficult to manage and budget larger amounts of money.
Cobley adds: “Advance can support employees to receive their income at a cadence which better aligns to their costs, and allows them the option to take their pay throughout the month in smaller amounts.”
The product has already been adopted by a number of workplaces, including Agilisys. The company said it had previously offered Salary Finance’s loans through the workplace, where repayments are made directly from salary.
The FCA’s website references Salary Finance as a member of Cohort 4 in its Regulatory Sandbox, designed to test innovative products. Whilst Advance is a new product in the UK, it is fast becoming a mainstream product in the US, with Walmart – the world’s largest employer with 1.5m employees – offering a similar product.