Durban — It’s not only in “Januworry” that cash-strapped South Africans run out of money before month end, forcing them to turn to loan sharks, friends or family to pay for essentials until payday.
The cost of living, especially transport costs, often pushes consumers into borrowing. Paymenow, a fintech company, said the problem could be solved by giving workers access to their pay before the end of the month, a concept that does not sit well with other money experts.
Paymenow marketing head Denise Neethling said that as an Earned Wage Access (EWA) platform, it gave workers the option of withdrawing a portion of their money for the days they had worked, rather than waiting for payday.
“In South Africa, the traditional way of being paid is at the end of the month. What happens if during the course of the month you have expenses or unexpected expenses that you didn’t budget for and then you don’t have money for it? You have to go to a loan shark or Mashonisa or borrow money from family or friends to cover those costs.”
Neethling said Paymenow put people back in control of their finances by providing an alternative that came with financial literacy.
One-hundred South African companies have signed up for it, as have many others in southern Africa. She said the system was popular in industries like retail, mining and security and was usually offered as part of an organisation’s wellness benefits.
“If on day 10 you’ve actually earned 10 days’ worth of salary, you have to wait until the end of the month to access it, so you have to borrow money to cover the expenses. We say: let’s give you access to a portion of that 10 days’ worth of salary so you use your own money to cover the expenses and don’t need to go elsewhere.”
She said it was a seamless process because its software integrated with the company’s payroll system and there was no cost to the company, but workers paid a small fee.
Neethling said there were different tiers in the programme and because people could only get a portion of the money they had worked for, there was no risk that someone could take their entire salary in advance and then disappear.
“People don’t have access to the full cookie jar, just a portion for emergencies and unexpected expenses,” she said. According to its research, most people used the money to cover their transport costs.
It’s not the only organisation of its kind in South Africa. Two years ago, Naspers Foundry announced it had invested millions into Floatpays, another EWA company. On its website, Floatpays said employers could set the percentage limit that employees could withdraw, limit who had a right to access the offering and set the number of withdrawals and voucher purchases an employee could make during the pay cycle.
According to the Pietermaritzburg Economic Justice and Dignity Group, most working-class South Africans run out of money for food in the middle of the month and there was always a need for additional cash.
Researcher Mervyn Abrahams said the answer was to address the real problem – low wages, rather than giving them access to their wages before the month was up, because at the end of the month, they wouldn’t have the funds to service their other expenses.
“We are putting a Band-Aid on something that actually needs to go for surgery.
“They won’t get into debt, but they will be locked into a similar trap from which they will constantly need to get their money twice a month rather than once a month, so that too is a trap,” he said.
Debt Rescue SA COO Annaline van der Poel said many South Africans were feeling the pinch and had no option but to turn to payday loans, where they borrowed money to get through the rest of the month.
She said in some cases people took multiple payday loans which then became a “spiral” from which they never recover.
Van der Poel warned the same could happen by giving people access to their wages before the end of the month.
“It might be a lifeline, but if people are accessing their salaries long before payday, it means they are not making it through to the end of the month and they start the next month on the back foot.”
Van der Poel said Januworry concerns were real, especially if workers were paid early in December and it could be six weeks before they were paid again.
According to Debt Rescue SA’s research, the two biggest credit facilities used by consumers were credit cards and payday loans, if they qualified for them, but these usually came with enormous interest rates.
“It’s actually loans for necessities. Consumers are literally using it to put food on the table, transport, fuel for their cars, it’s less and less a case of luxuries.”
She said January was usually harder than other months because many people had overspent over the holiday period, they were severely cash-strapped but had also missed payments on various accounts.
“Depending on the desperation levels, they could be turning to unregistered credit providers – loan sharks. It’s an unregulated industry which, unfortunately, comes with its own risks and pitfalls,” she said.
According to the National Credit Regulator 68.9% of applications for credit in any category were rejected.
“It’s been hovering in this region for the past five quarters. It’s a significant percentage of credit applications that are being rejected, which also tells you that the consumers cannot afford it and are most likely in a very difficult financial position,” said Van der Poel.
Independent on Saturday