#32. A new hot model of startup: Earned Wage Access
VCs are looking at Earned Wage Startups. Shoprite's exits from several countries in Africa. A source for investment in Emerging Market insights.
Welcome! Have you ever wondered:
What are Earned Wage Acess startups, and why are investors looking at them? 💰🕴️
Why did Shoprite exit several African Markets? 🚶🌍
Where to read the best investment insights in Emerging Markets? 💵🗞️
If so, keep reading…
Earned Wage Advance startups in Emerging Markets
Earned Wage Access startups are a model that investors are paying close attention to these days, with an increased investment amount in 2021.
What these startups do is allow employees to access the wage that they have already earned before the end of the month. In most countries, payrolls are paid at the end of the month, and these startups are changing this paradigm. This can be offered as an advance in exchange for a fee for the employee, an employee benefit, or a loan with lower interest.
This has an ingredient of social entrepreneurship, as a salary advance can be a good alternative to predatory loans for unexpected expenses. This type of expense has emerged more during the COVID-19 pandemic, giving momentum to these startups.
This is a model that has been around for a while: in the US, DailyPay is already a unicorn. It can be a case of Time-Machine management theory, in which the business flourishes first in the US to then succeed in a similar way in other emerging markets.
These startups have started to emerge in Indonesia, with the cases of GajiGesa or Wagely raising seed rounds of $2.5M and $5.6M respectively this year. They spotted an opportunity in Indonesia, where 75% of workers struggled to pay unexpected expenses during COVID-19. Wagely, for example, claims to have a strong user rate of 50% of the employees that have it available. Both companies were born during the pandemic.
Minu, in Mexico, does it differently. The wage advances are provided in exchange for a withdrawal fee, which is the same as the one an ATM would charge. They have onboarded more than 100 companies and have investors like Jeff Bezos, Bill Gates, or Mark Zuckenberg, and VCs like xyz.
Refyne in India was also born in 2020. Refyne is free for the companies that use them, meaning that they charge the employees for early salary access. They have xyz as investors as well, and more than 60 Indian companies onboarded.
There is also a YCombinator S21 Pakistani company doing this: Abhi. They operate in a B2B2C model and offer the service as an employee benefit. Abhi was founded in 2021 and raised a $2M seed round in June.
Failure story: Shoprite’s exit from East and West Africa
Shoprite is a South African chain of supermarket stores founded in 1979. They are mainly focused on food retail, and also have offerings for liquor, pharmacy, furniture, and travel. They target consumers at all income levels and have locations across all of Africa.
However, recently they have been closing several locations abroad. 2020 was not a nice year in terms of earnings, due to the pandemic and several other factors. Factors affecting this poor performance include currency devaluations, supply chain issues, inflation, and low consumer spending in countries like Angola, Nigeria, and Zambia.
Therefore, they decided to sell their locations in countries like Nigeria, in which they’ve been operating for 16 years; or Uganda, where they’ve been for 21 years.
They announced their divestment of business operations in Nigeria for reasons including the COVID-19 pandemic, logistic difficulties, and currency devaluations. The reasons for leaving Uganda are similar and include factors like consumer preference in Uganda for smaller stores and the government ruling imposing tariffs on imported goods and that local product had to make 50% of the offering.
Shoprite is now focusing on the markets of Southern Africa, where more strategic revenue opportunities have been spotted.
Source recommendation: Tellimer
Tellimer is an analysis site collecting the best business analysis in Emerging Markets, including investment insights. They’ve been doing analysis for 20 years. It is where you’ll find what matters in Emerging Markets.
They send several newsletters: a daily one with the most important news, one with 5 insights on Friday, and one on Tellimer Research during the weekends that dives deeper. They operate under a freemium model: the newsletters are for free, and the articles are paid.
You can read their analysis here: https://tellimer.com/