American workers’ financial stress is driving innovation, because the problem is real:
- Over 50% of the US workforce live paycheck-to-paycheck
- #1 cause of stress for workers is financial stress
- 85% of workers would work more if they could get paid faster
Research at the Harvard Kennedy School (link) has focused on the drastic impact these FinTechs can have on turnover, and even quantified it:
Effect on turnover
- Early-wage access was proven to reduce turnover by 20-40%
- Turnover is estimated to cost at least 15% of a worker’s annual pay (Deloitte)
- In high-turnover industries, such as retail (90% turnover), this implies ~$800 in savings per hourly worker
Companies have proven that, by taking back the reimbursements of loan principles from a paycheck, before the paycheck is received, they are able to decrease default rates dramatically.
This same study (HKS) showed that for a population with an estimated credit score of 550-600, default rates were around 5%. This means that SalaryFinance would charge a rate of 12% on average. However, the estimated APR for a loan to someone of this credit score is of 192%!
Wage-backed loans can bring down APRs >10x, from 192% to 12%.