The role of technology in financial wellbeing and inclusion

A recent report by Harvard’s Mossavar-Rahmani Center for Business and Government identified salary link, an employer-sponsored fintech geared towards helping workers with poor credit access to mainstream financial products, as a significant way of boosting financial inclusion.

Salary link essentially works by enabling the automatic repayment of products, including everything from short-term loans and advances to emergency savings accounts, through deduction from the employee’s salary. According to the study, this “provides more efficient, less costly and more inclusive liquidity and credit solutions” for working families on the lower end of economic ladder.

UK-based employee loan provider Salary Finance was cited in the report as a fintech firm making good in this area. Since being founded in 2015, the company has raised $59 million in funding from investors. Its partners include Metro Bank, recruitment firm Hays and London’s Hackney Council.

With the group set to launch its services in the US next month, co-founder and chief executive Asesh Sarkar tells HRD Connect about the role of fintech in not only reducing financial stress for low-income workers, but also in bringing greater financial inclusion to society as a whole.

Salary Finance describes itself as “bringing together expertise in financial technology with a desire to do good”. What does that entail exactly?

Asesh Sarkar: Salary Finance is about trying to deliver better social outcomes for middle-to-low income earners. When it comes to consumer finance, mostly the case is that the less you earn, the poorer access you have to it. If you look at payday loans or credit cards, they are generally considered to be very high cost.

While financial services work for some, there are parts of it which are quite regressive so our aim has always been to build a commercially successful business. However, we want to achieve this in a way where we don’t just look at our individual decisions, but also look at the impact that has on wider society and where we can try to address some of the imbalance.

To use something as transformational as fintech to create a better society – because finance is a core part of society – is a good thing.  Our aim is to try and use the advancements of technology in the sector to not only deliver good commercial returns, but also to make a difference.

You are preparing to launch in the US next month – why did you choose the US, over other regions where financial inclusion isn’t doing so well?

It stems from a few different things. The first is that many of our UK clients have a US presence. Through doing our research, we discovered that the US is actually in a pretty similar position to where the UK was around 18 months ago. This idea of financial wellness is just starting to enter the radar of employers, but there are still aren’t too many solutions that can make a difference. It’s a developing market so we believe now is the right time to enter it.

Another reason is that we have a pretty special partnership with United Way, the US’s largest non-profit organisation. A lot of what they do is around payroll giving, through which they collect donations from employees and use them to invest in social projects on a huge scale, relying on a network of over 100,000 employers and 50 million employees.

So we will be introducing Salary Finance to that vast network across all 50 states.

Are there any other markets in the pipeline?

There are other countries we are looking at, in both the developed and developing worlds. While we definitely see international as being a big part of what we do, we haven’t made any decisions yet.

How important is fiscal literacy and education in all of this? How do you balance the mission of doing good with lending to people who may have limited/no previous experience of money management?

Lending and education are two things we see as coming very much hand in hand. Levels of financial literacy for middle-to-low-income employees is generally low, but that’s also because the financial system today is geared to not be particularly helpful to middle-to-low-income employees.

Our observation from our own research is that the options for low-to middle-income people just aren’t very good. You could take someone with no prior access to mainstream finance – the options available to them tend to be high-interest loans and payday loans – and you could give them all the education in the world, from the best money managers in the world, but it wouldn’t be of any value to them because of the uncertainties of their situations.

But, conversely, the opposite is true. You can create great product, but if you don’t have the change in behaviour – which education can help create –  then you may not get the best outcomes. So what we are trying to do is the two things in parallel: providing product features which intrinsically create good financial habits as part of people’s lives.

According to the latest Global Findex Database figures for 2017, we are seeing financial inclusion grow all the time on a global scale. What difference do you see fintech and salary link making to help move the dial even more in the right direction?

The thing about fintech is that there is much more openness to try new and innovative things. When Salary Finance first started, there wasn’t a precedent to rely on. The way of credit scoring of employees in general and pricing risk was well-established, so when we went into the market to try and raise funding for people to fund our loans through using alternative forms of data, there was little appetite to fund it. No bank was able to get through their governance committee what we were trying to do.

Fast forward today, we now have a long list of banks that will happily fund us. So, what we see with fintech is that it is very good at trialing things in a way that doesn’t have huge amounts of governance, which often stifles innovation before you’ve even started. We are a big believer that in getting to scale, we do need significant financial partners. For example, we brought in Legal & General as an investor last year because we needed a sizable player to help us scale.

In terms of financial inclusion and salary link, in general, we think it’s pretty helpful. The classic way employees get loans is based upon their credit score, which tend to look at all sorts of data items to get an idea of whether you’ll be able to repay your debt or not.

All you need to know are three basic things when you lend to someone: how much they earn, how much they spend, and roughly what they can afford to pay each month.

If you have those three items of data, you don’t need to look at hundreds of others. The good thing about salary link is that you already have verified income from the employers, so you know exactly what they earn. You can estimate their outgoings, and you can work out what is affordable to them. As opposed to the credit scoring system, by knowing someone’s salary and someone’s employer, we have new data we can bring in that gives you more of a rounded picture about a person rather than just a number.

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Join HRD Connect and Salary Finance for a webinar on 31 May and learn how you can help your people and business thrive through financial wellbeing.