The Pros And Cons of Earned Wage Access

The earned wage access (EWA) debate continues to rage on, despite the fact that most Malaysians have yet to hear of such a scheme, with it being the relatively new kid on the financial inclusion agenda block.

In a nutshell, EWA is the financial facility of allowing a company’s employees access to a portion of their wages before the traditional payday, usually to meet some immediate financial needs.

It is not difficult to imagine right off the bat the benefits – and problems – that could result from such “flexibility”.

EWA platform Paywatch Malaysia Sdn Bhd co-founder and chief executive Richard Kim, who used to own a bar and restaurant in South Korea, is candid in saying that there are two sides to the issue.

However, he is adamant the pros outweigh the cons.

The need to found Paywatch, Kim tells StarBizWeek, stemmed from a practical need as his former employees would frequently request salary advances for the work they had completed, within the amount they had already earned during a particular month.

This inspired him to create a platform to facilitate these transactions.

“EWA is not a new concept, and previously in many places, this practice was often informal and was primarily aimed at helping workers meet immediate financial needs between salaries.

“However, it wasn’t until the rise of digital technology and financial services that EWA evolved into a formalised solution,” he explains.

These days, Kim says Paywatch is allowing users to tap into their daily accumulated earnings even before their traditional payday.

This provides employees the flexibility to address immediate financial needs or manage cash flow more effectively.

At their routine monthly payday, these employees will then get the remainder of their pay as scheduled.

Detailing the importance of EWA, Kim reveals that in many South-East Asian markets, including Malaysia, there is a barrier of limited financial inclusion, where many individuals are underserved or excluded from mainstream banking services.

“As such, many turn to resources like peer-to-peer lending, payday loans and traditional credit cards.

“Worse still, some resort to using illegal predatory lending practices such as loan sharks – which unfortunately are still common in Malaysia,” he says.

To address this concern, Kim says Paywatch works to ensure equitable financial access for all employed individuals, seeking to empower its users with the ability to be more agile in making better financial decisions.

Hammering home the point, he says: “This represents a safer alternative to other credit services and leads to improved employee well-being, as financial security and a safeguard against high-interest loans and debt is made available, as well as a safety net in emergencies.”

For employers, he mentions that EWA has been shown to lower turnover for companies with large frontline workforces, and to drive greater employee satisfaction.

Interestingly, economists – while recognising the potential benefits of EWA – are cautioning the timing and practicality of its application.

In agreement with Kim’s views, veteran economist Prof Geoffrey Williams says that EWA is a way of improving employment contracts and creating greater flexibility in employment relationships.

He says that EWA is a form of piece-rate payment more commonly used in the gig economy or in contract-for-services arrangements, and is often an attractive benefit.

“It can work very well if the labour market is functioning properly.

“Many employers would prefer this but only if it meant more scope for them to hire and fire workers.

“Employees, on the other hand, would prefer this but only if it meant they could work elsewhere in multiple jobs more easily.”

In the meantime, Centre for Market Education chief executive Carmelo Ferlito prefers the more prudent approach generally characterised by Malaysian banking institutions, noting that EWA schemes should be scrutinised with a sound trade-off analysis.

“In practice, are we transferring the funds from the banks or directly from the employers’ coffers?

“Either way, we need to keep in mind the cash flow of the banks and employers as well as paying attention to employees’ spending habits,” he cautions.

Before a large-scale implementation of EWA is carried out, Ferlito urges initiatives on financial literacy and fiscal prudence, giving his thumbs-up to the government’s measures towards that direction, such as conducting financial management seminars to the public.

In the long run though, he reaffirms his belief in structural reforms that will create a more permanent beneficial environment for all.

“In my opinion this means embracing market-friendly initiatives which may spur entrepreneurship, business consolidation and, as a consequence, innovation, so that better-paid jobs can be created,” he tells StarBizweek.

Williams concurs that the EWA could be a double-edged sword, observing that some employees might spend their wages too early and have nothing left at the end of the month, while others will not spend all of their wages on payday and struggle as the month progresses.

He says: “So essentially this is a question of choice, flexibility and deregulation of work which is good, provided legal protection for workers is not diluted and they are empowered by this and not otherwise.”

On that account, it is interesting to note that Paywatch’s target users are individuals with limited access to comprehensive financial services, and this group is more likely to have limited financial literacy and awareness that hinders full utilisation of banking services.

According to Kim, these are usually frontline workers that often may have limited savings.

In addition to EWA, he says another key component of empowering employees to make better financial decisions is promoting greater financial literacy through programmes or initiatives, unsurprisingly.

In that vein, he says Paywatch has thankfully partnered with Visa to integrate financial literacy content on its platform, with the aim of educating individuals to make better financial decisions.

“The content covers topics from budgeting tips to safeguarding against identity theft. Moreover, employers can set a percentage limit as to how much employees can withdraw within a month,” says Kim.

'On a separate note, he says the platform has thus far managed to form partnerships with established regional financial institutions, including Oversea-Chinese Banking Corp Ltd (OCBC), United Overseas Bank Ltd (UOB), Hong Leong Bank Bhd , and Visa, providing a pathway for users to gain access to banking systems.

More tellingly however, he says traction for EWA was accelerated when household financial burdens increased from the effects of the lockdowns and the resulting high inflation over the last few years.

He further reveals that at present, some of the largest employers in the Western hemisphere, including Amazon.com Inc. and Walmart Inc., have it directly integrated EWA in their payroll systems.

“In Asean, there is an increasing demand for access to financial solutions, especially amongst lower income workers, so we wanted to provide these employees with the tools to empower better financial decisions, which gave birth to Paywatch,” he says.