Wagely, a fintech company from Indonesia, has made a name for itself with earned wage access: a way for workers in Southeast Asian countries to get an advance on their salaries without resorting to higher-interest loans. With half a million people now using the platform, the startup has expanded this work into a broader “financial wellness” platform, and to give this effort an additional boost, the company has now raised $23 million.
This news is particularly noteworthy given the collapse in funding that startups in Indonesia have faced in the past two years, underscoring how developing countries are being hit harder than developed markets in the current tech bear market. Financing for Indonesian startups fell 87% in 2023 compared to the previous year, falling to $400 million from $3.3 billion, the Indonesian Financial Services Authority said in January.
This economic pressure is not limited to startups: ordinary people are under even greater pressure.
While consumption of goods and services grew significantly, salary growth in various sectors did not continue. Workers are looking for solutions including credit to meet their needs between fixed payroll cycles.
But access to credit is not universal.
Millions of workers are underbanked and lack credit histories. In some cases, these workers are forced to find alternatives, which could be finding a job that pays wages in a shorter period of time than the traditional month-long pay cycle. This leads to a high attrition rate for employers. Likewise, workers who cannot lend money from a bank or financial institution in an emergency often fall into the trap of lenders, who charge exorbitant interest rates and engage in predatory practices. It is not surprising that access to earned wages is being disrupted by global banking institutions such as JP Morgan as a financial remedy: it is important for both employees and employers.
The concept of access to earned wages has been prevalent among companies in developed markets such as the US and the UK – especially after the COVID-19 pandemic affected the jobs and household incomes of many individuals. In 2022, Walmart acquired earned wage access provider Even to provide early access to wages to its employees. Other major US companies, including Amazon, McDonald's and Uber, also offer their employees early access to wages programs.
Wagely, headquartered in Jakarta, brought this model to Indonesia in 2020 and entered Bangladesh in 2021. The startup believes that providing access to earned wages in these markets is crucial, given that 75% of Asian workers live from Paycheck to paycheck and they are paid much less than their salaries. Their counterparts in the United States and other developed countries.
Image credits: Wagely
“We partner with companies to provide their workers with a way to withdraw their pay any day of the month,” Kevin Hausberg, co-founder and CEO of Wagely, said in an interview.
Like other earned wage access providers, Wagely charges a nominal flat membership fee to employees who withdraw their paychecks early.
Hausburg told TechCrunch that the fees, which he described as “paycheck ATM fees,” generally range between $1 and $2.50, depending on employees' partial pay withdrawals, as well as their location and financial well-being.
Wagely, which has about 100 employees, with roughly 60 in Indonesia and the remaining 40 in Bangladesh, disbursed more than $25 million in payroll in 2023 alone through nearly 1 million transactions and served 500,000 workers.
Since announcing the last funding round in March 2022, the startup has seen its revenues grow nearly five-fold and its business has tripled from last year, the founder said, without revealing details. This revenue comes solely from the membership fees the startup charges employees. However, it still burns cash.
“We're burning cash because it's a high-volume game,” Hausberg said. “However, the margins and the business model itself are broadly sustainable.”
While Wagely was an early provider of earned wages in Southeast Asia, the region has added a few new players. This means that the startup has some competition. There are also global companies that have the potential to overcome Wagely by entering Indonesia and Bangladesh over time.
However, Hausberg said convenience makes the startup a distinct player. The founder said it takes three clicks from downloading the Wagely app or accessing their website through a browser to getting money in your bank account.
“This is something that no other competitor comes close to because other earned wage companies focus on different things,” he said.
One area where earned wage access providers globally have now shifted their focus is lending – in some cases, to loaning money to employers. Some platforms also include advertisements to generate revenue by offering different products that are co-sold to workers. However, Hausberg said the startup has not turned to advertising or other services that are meaningless to the workers it serves.
“Focus on what your customers need. Don't get distracted, and don't try to improve revenue in the short term,” he noted.
Wagely's business model runs on economies of scale. That is, to become profitable, it needs to expand from half a million people to several million.
With Capria Ventures leading this latest round, the startup plans to leverage the funding to delve deeper into Indonesia and Bangladesh, expanding into financial services, including savings and insurance, and exploring AI-based generative use cases, including automated document processing and local language conversation. Interfaces for workers.
Recently, Wagely partnered with Bangladeshi commercial bank Mutual Trust Bank and Visa to launch a prepaid salary card for employees in the country, which has a smartphone penetration rate of about 40% but has an extensive infrastructure for card and ATM-based payments. The founder said it is monitoring other Asian countries but does not have the immediate potential to enter any new markets anytime soon.
Wagely did not disclose the amount of debt versus equity in this round but confirmed it is a combination of the two. The debt portion will be used specifically to finance payroll disbursement. This was also the first time the startup, which received a total of about $15 million in equity before this funding round, had raised debt.
“It's not sustainable to grow a business through equity alone, especially because we pre-disburse workers' earned salaries, and the only way you can build this business sustainably is by having a very strong partner on the debt side that provides you with capital,” Hausberg said. “The time is now,” according to TechCrunch.
Employers do not provide advance payment of wages on their own; Instead, they reimburse Wagely for the amount disbursed to employees at the end of the pay cycle. This requires the startup to maintain a sufficient reserve to cover the advance wages of employees registered on the platform. The startup conducts “rigorous checks” on its employer partners and works with reputable, publicly listed, and well-compliant private companies to mitigate the risk of employers not paying advanced wages provided to employees after the end of the pay cycle.
“The Wagely team has demonstrated excellent execution with impressive growth in providing a sustainable, win-win financial solution for underserved workers and employers,” said Dave Richards, managing partner of Capria Ventures, in a prepared statement.
