According to the National Monte de Piedad, 17% of the country’s adult population goes to pawn shops to obtain credit. That means that about 13 million Mexicans use the more than 10,000 pawn shops available throughout the national territory.
That many of these people have to resort to bank loans (whose interest rate is around 7% per month, while in a pawn shop it is 3%) to finance their activities, was a red flag for the emergence of Mexican companies that They provide access to part of the worker’s salary without having to wait for a fortnight.
The lack of liquidity coupled with the economic crisis caused by the pandemic triggered the rise of these companies that already existed in countries such as the United States and the United Kingdom, where they enjoy greater penetration.
Access to your compensation as soon as you earn it
Even Responsible Finance Inc., founded in 2014, was one of the pioneers in offering salary on demand in the United States and its arrival certainly shaken the way payroll is traditionally processed. A study in that country found that, in 2020, workers used this service 37 million times, accessing almost six billion dollars, almost double the number of the previous two years.
The mode of delivery of earned wage access offers depends on the provider, some are directly integrated with the employer’s payroll systems, while others are offered directly to the consumer. Even finished developing his idea with the support of Walmart and today he has alliances with other large companies such as PayPal.
Other companies that have opened up to this possibility see prepaid access as a way to deliver innovative benefits in the workplace to help employees manage their financial lives.
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Of course, this and other financial wellness programs have emerged as employers realize the importance of easing monetary stress on their workers. Data from the consulting firm PwC indicates that financial worries are the biggest cause of stress among employees (59%), 35% claim to be distracted with their finances while they are at work.
Employers who are concerned about easing the burden of financial stress by being more agile on payday and offering creative financial wellness benefits have found that their payoff comes in terms of increased productivity, engagement, and loyalty.
It is interesting that a new wave of companies has grown in their quest to offer solutions to the current liquidity crisis, many of them offering workers early access to up to half their salary, usually for a fee. The key benefit of salary on demand, in contrast to payroll credits or bank loans, is that the worker does not have to borrow money, as it is an advance on the salary that has already been earned. In a way, it is a cheaper and less risky way to receive cash faster.
Currently, it is estimated that less than 5% of American employers use pay-on-demand, this according to data from the Society for Human Resource Management. However, that number is expected to rise to 20% by 2023 as the value of such programs becomes clearer.
What is the scene in Mexico?
In our country, companies in the fintech sector, such as Minu, YoDispongo and Klinc offer Mexican workers the option of having part of their daily salary worked without waiting for a fortnight.
“Many of the solutions available to obtain liquidity generate more debt, as they are more associated with commitment or credit, which ends up being counterproductive,” said Rafael Niell, director of operations and co-founder of Minu in an interview with Forbes Mexico.
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“In Mexico, 50% of workers’ wages are usually spent in the first five days after payday. By not having the necessary resources to face the main needs such as expenses for health, family, food, and household expenses, as well as other expenses, workers generate additional stress and begin to reduce their personal and family well-being , which also has an impact on their job performance, “says a statement from the fintech Yo dispongo.
For its part, Klinc offers an application that allows employees to make payments and withdraw money from their salary 24/7, through a QR code in convenience stores and without charging interest to reduce the economic stress of not being able to cope with emergencies and with it, the effects it can have on people’s job performance.
Both Minu and Klinc also offer a lot of content related to healthy personal finances (money management, savings and more) in an effort to help employees manage their financial lives as easily as possible and prevent them from remaining within the vicious circle of living. up to date.
The rise of these solutions at the national and international level raises several scenarios, the pandemic has led to part of that apogee, but it is important not to lose sight of how companies in this sector will continue to mature and how workers will take advantage of the on-demand wage solution without end up depending on that resource, a risk that has already been pointed out by US authorities. Without a doubt, this scenario invites us to reflect.
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