Rethinking The Approach To Early Wage Access

Trade finance continues to evolve as a tool designed to meet the cash flow needs of both ends of a B2B transaction. Corporate buyers can ensure invoices are paid without letting go of working capital, while suppliers’ own cash flow is supported through timely invoice payments.

But accounts payable (AP) isn’t the only avenue of capital outflow for businesses. Among the most burdensome — and yet most important — is payroll, a workflow that Hi55 Ventures’ CEO and Founder David Brown said is fundamentally broken.

Historically, employers deploy the legacy payroll strategy of disbursing wages to employees on a bi-weekly or monthly basis, a schedule that supports their own working capital needs. But too many employees are living paycheck to paycheck, with expensive consequences, as Brown told PYMNTS in an interview.

He discussed Hi55 Ventures’ development of Hi, a FinTech that aims to take a new approach to payroll by placing employee financial well-being at the center. The key, he explained, is not only to transform the way employees get paid, but to transform the way they pay, too.

A Working Capital Challenge

The pandemic made it painfully evident just how much employers struggle to manage working capital in a way that can ensure employees are getting paid.

“You have the employer who’s got to find huge amounts of working capital to make payroll happen,” said Brown. “The pandemic has shown us how difficult that actually is because if the government never stood in to finance payroll, you’d have hundreds of millions of people unemployed because nobody had working capital to fund payroll.”

In the U.K., where Hi55 Ventures is based, the company’s own research found that as many as 70 percent of employees were experiencing. financial stresses — and about half of that figure attributed that duress to struggling to make their own payments between payroll cycles.

Hi stepped onto the market in an effort to address this dual-sided pain point. Taking a page from the trade finance model, the company created a new asset class (which Brown said was an unintentional discovery) dubbed Pay Asset Finance. The solution unlocks working capital for employers, allowing firms to pay workers on a weekly or daily basis, while they themselves can defer payroll payments by up to 12 weeks.

Driving Employee Well-Being

According to Brown, Hi’s business model not only aims to address the cash flow challenge for both employers and employees, but it intends to challenge the recent emergence of an alternative business model similarly designed to connect professionals to earned wages more quickly.

FinTechs that offer early or on-demand wage access, said Brown, often charge the worker to receive those funds. As a result, these solutions that aim to ease the cash flow burden on workers can actually create new pain points.

Charging an employee to access their earned wages is “fundamentally wrong,” he said, “because it’s not their fault that payroll’s not working — it’s actually the employer’s fault. Why charge the employee on a debt they’re owed?”

With large employers able to secure better financing rates than their individual employees, it makes sense to alleviate that cost burden on the worker, he added. Hi aims to take this business model global, announcing the pursuit of Series A funding round to facilitate an expansion throughout Europe as well as the U.S., where the company will be taking a card-based approach to connecting professionals to their wages more quickly.

The goal, noted Brown, isn’t merely to change the way that employees get paid. Rather, there is a catalytic effect of strengthening the cash flow of the employee without placing a working capital burden on the employer. Brown pointed to opportunities for professionals to secure significant savings on their debts by paying down credit cards or mortgages more frequently as a direct result of more timely access to wages.

“If you can change the way you get paid, then you can change the way you pay,” he said.