We have written extensively about our thesis on employer-led financial services and digital health. In earlier posts we have written about partnering with employers to help employees avoid becoming chronic care patients, the importance of supporting employees to become asset owners, and the importance of employee access to earned wages.
With our recent investment in GIMO, the leading earned wage access provider in Vietnam, we extend coverage of this investment thesis to Vietnam’s 55 million salaried workers. GIMO was recently admitted into the W22 batch of Y Combinator, further validating the potential of GIMO which we are very excited about.
In this post we look at some of the key differentiating factors of earned wage access (“EWA”) companies vis-a-vis traditional consumer financial services companies, and why we believe GIMO is positioned to be a leader in EWA in Vietnam.
We see investing in EWA as an alternative to investing in a consumer lending company. In particular, digital banks (“DB”) have recently received a lot of interest from investors, and have raised large amounts of VC and growth funding. While both EWA and DB share a similar goal; to bring financial services to an underserved market segment, they are typically also different in significant ways.
Here’s how they differ:
- EWA players do not charge interest rates
DBs make money from the spread between their lending and deposit rates. At heart, its operation is a lending business. Depending on delinquencies and the efficiency of its operations, whatever remains is its profit.
EWA players, on the other hand, typically charge a flat convenience fee. While this could be perceived as a loan dressed up as a benefit, it really isn’t — it’s income that has already been earned but not yet paid to employees. In our portfolio, we already see some employer partners picking up part or all of the convenience fees for their employees. Rightly, they see that access to earned wages drives employee retention and productivity. The convenience fee is so small that the benefits clearly outweigh the cost.
2. Different target audience
DBs and EWA players both serve a retail audience. However, there are nuances around the market segment that each of them targets. A lot of DBs entice customers to sign up by providing high interest rates on deposits. This strategy is contingent on the consumer having savings to begin with, which probably excludes the majority of the EWA target market, who are living paycheck to paycheck.
DB’s strategy is also contingent on procuring an audience that is already banked, meaning that DBs target sign-ups from customers who already have an existing bank account. These target customers often leave their existing traditional bank accounts for DBs because their experience with traditional banks have been poor (it usually is) and the high initial deposit rates offered by DBs have been enticing. The crucial next step is to then convert the customer to an engaged customer by offering compelling credit and other products.
EWA on the other hand has a different hook, and serves a different market. Salaried workers who live paycheck to paycheck may be aspiring savers, but their initial problem is managing short-term cash flows. The EWA hook is to provide access to already earned wages that are tied up in the employer’s payroll systems. The goal is expressly to help employees stay away from borrowing, rather than enticing them to become a borrower by offering high deposit rates.
3. Different acquisition strategy
DBs are (usually) consumer-facing companies. Besides high deposit rates, a lot of DBs invest heavily in their branding. If the goal is to get people to move their savings from their existing bank or from under their mattress to their bank account with DBs, this strategy makes sense. DBs’ customers need to believe that the DBs are 1) real and 2) going to be around for the foreseeable future, or at least for as long as they have their money stored with them. While this branding exercise, along with the consumer-facing fintech can propel DBs to become really valuable companies, this will require a lot of capital up front.
EWA on the other hand, has a B2B2C strategy. Rather than investing in B2C acquisition, EWA providers partner with employers and as such are able to onboard hundreds or thousands of customers at once. As EWA integrates with Human Resource systems, KYC and onboarding is greatly simplified, with high conversion rates kept at low cost. While companies paying salaries in cash are commonly seen in blue-collar settings, EWA providers may help to solve this problem by offering a payroll card, bringing employees into the formal financial system. The payroll integration then serves as an efficient tool to disburse earned wages.
GIMO’s slogan, “Live Better, Work Happier” perfectly encapsulates what the company seeks to achieve: to improve the well-being of the millions of financially-underserved workers in Vietnam, empowering them to live a better life and to work with a peace of mind with the knowledge that they could draw down on earned wages if required. Integra has been impressed by GIMO’s strong product-driven culture and its process-driven approach to partnering with large employers. The company is in that sweet spot of focusing on the long tail of blue collar and gig workers, offering a real alternative to predatory lending.
The company’s recent admission into Y Combinator is testament to the quality of GIMO’s team and it’s mission to bring EWA to Vietnam. We are proud to partner with the GIMO team and look forward to embarking on this journey together.
Written by Christiaan Kaptein, Partner at Integra Partners. Illustrated by Theodore Ng, Analyst at Integra Partners.