The Power of the Salary Link

February 17th, 2021

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.

American workers’ financial stress is driving innovation, because the problem is real:

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

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Wage-backed loans

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 192%.

Wage-backed loans can bring down APRs >10x, from 192% to 12%.

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About the Author
Alex Kostecki

Alex Kostecki

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