As Wonga collapses, Zuckerberg, Bezos and Gates support fairer alternative to payday loans

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After months of hardship, the payday lending platform Wonga entered the administration.

The company, which was lending at interest rates of up to 5,800%, collapsed after struggling to fund compensation for a growing number of customer complaints.

The start-up was funded by eminent investors such as Accel and Balderton Capital and operated across Europe and South Africa.

Wonga received continued backlash over the years for charging what many saw as predatory interest rates, targeting vulnerable customers who were often unable to obtain any other form of credit.

However, the predatory lending problem is far from confined to Wonga. This is a problem throughout the payday loan industry.

With Wonga’s demise, the question arises as to whether there are better alternatives for those in need of short-term funding.

Global Village, a venture capital fund backed by leading entrepreneurs such as Facebook CEO Mark Zuckerberg, Amazon founder Jeff Bezos and Microsoft founder Bill Gates, announced its London roundtable salary earlier this summer.

Wagestream provides a platform that allows low-wage workers such as waiters to withdraw their wages and tips as they earn them, eliminating the need to wait for a fixed monthly salary.

I recently interviewed Peter Briffett, co-founder and CEO of Wagestream for my Impact Hustlers Podcast.

He says the reason payday loans are so popular is that the pay cycles in most places are still monthly.

“Our mission is to destroy payday loans. If you pay 3000% interest, there aren’t many humans on earth who can break this cycle.”

Briffett hopes to be able to provide a better alternative, which will eliminate the need for people with bad credit to rely on loans at predatory interest rates.

“If I was a waiter at a pizza place and earned tips today, I wouldn’t see them until the end of the month. With Wagestream, we make those tips and their pay instantly accessible.”

Wagestream is not accessible to the public but works with companies to implement the solution for their staff.

The Wagestream app, allowing employees to instantly withdraw their salary after earning it

salary

Briffett claims that their solution is not only of benefit to employees, but also to their employers.

“If you reduce employee financial stress, employees stay with them longer. “

“The other benefit for employers is that staff become more productive. We have a security company that was struggling to get their employees to take paid overtime. After deploying Wagestream, staff struggle to take additional shifts, as they can directly access their pay.

Although the company does not charge any interest rates, Wagestream follows a business model where employees are charged £ 1.75 for each withdrawal they make, similar to the withdrawal fees charged by some ATMs.

With these low fees, the company claims it can both eliminate high loan costs for low-wage workers and establish a sustainable business model for Wagestream to become a profitable business.

Wagestream isn’t the only company trying to provide a better alternative to payday loans. While access to alternatives has been relatively limited, North American startups have released similar solutions to Wagestream.

Canadian startup Instant financial, as well as US-based startups such as Daily payment and Silicon Valley company Payactiv, have developed similar solutions in North America.

The United States appears to be leading the way: Walmart started working with Same and Payactiv in 2017 to offer its 1.4 million workers instant access to their salaries.

Listen to the podcast with Peter Briffett from Wagestream here.

An earlier version of this article did not mention that Walmart was working with Payactiv, alongside Even for his initiative. This has been changed and added.

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