The news is especially notable given the drop in investment that Indonesian startups have faced over the past two years, underscoring how emerging countries have been hit harder than evolved markets in the existing tech bear market. Indonesia’s Financial Services Authority said in January that investment for Indonesian startups declined 87% in 2023 from the previous year, from $3. 3 billion to $400 million.
This economic strain isn’t unique to startups: other people are under even greater pressure.
Although the consumption of goods has increased significantly, wage expansion in all sectors has not kept pace. Workers are looking for solutions, adding credit, to satisfy their desires between constant pay cycles.
But credits aren’t ubiquitous.
Millions of employees are unbanked and have no credit history. In some cases, those employees are forced to look for alternatives, which could include finding a job that pays them wages in a shorter period than a classic one-month pay cycle. It translates into a higher attrition rate for employers. Similarly, staff who are unable to lend cash to a bank or monetary establishment in an emergency find themselves trapped by loan sharks, who charge exorbitant interest rates and engage in predatory practices. It’s no surprise that access to earned wages has been touted by global banking institutions like JP Morgan as a monetary panacea – it’s vital for both staff and employers.
The concept of earned wage is prevalent in corporations in evolved markets such as the U. S. and Canada. This is especially true after the COVID-19 pandemic affected many people’s jobs and household incomes. In 2022, Walmart acquired earned wage provider Even to provide early wages to its workers. Other major U. S. corporations, such as Amazon, McDonald’s, and Uber, will also offer their workers advance payment programs.
Jakarta-based Wagely brought this genre to Indonesia in 2020 and entered Bangladesh in 2021. The startup believes that covering wages earned in those markets is even more important, as 75% of Asian workers live paycheck to paycheck and have particularly lower salaries than their wage counterparts in the U. S. In the U. S. and other evolved countries.
Image credits: Salaried
“We partner with corporations to offer their staff a way to pick up their paycheck any day of the month,” Kevin Hausburg, co-founder and CEO of Wagely, said in an interview.
Like other payroll providers, Wagely charges a nominal fixed payment to workers who withdraw their wages early.
Hausburg told TechCrunch that the fee, which he describes as an “ATM paycheck fee,” stays between $1 and $2. 50, depending on the partial pay workers withdraw, as well as their location and monetary well-being.
Wagely, which has around 100 employees, totaling around 60 in Indonesia and the remaining 40 in Bangladesh, paid more than $25 million in wages in 2023 alone, thanks to nearly a million transactions and serving 500,000 workers.
Since its last investment circular announced in March 2022, the startup, the founder said, has noticed that its profits have increased fivefold and tripled its business compared to last year, without disclosing details. This source of profit comes solely from the club’s payment. that the startup charges employees. However, it still burns money.
“We’re burning money because it’s a volume play,” Hausburg said. “However, the margins and the business style itself are sustainable at scale. “
Although Wagely is the leading provider of salary access in Southeast Asia, the region has added some new players, which means the startup has some competition. There are also global corporations that can compete with Wagely by gradually penetrating Indonesia and Bangladesh.
However, Hausburg said the convenience makes the startup a separate player. It takes 3 clicks to download the Wagely app or its online page through a browser to have cash in your bank account, the founder said.
“It’s something that no other competitor comes close to, because other paid access corporations are focusing on other things,” he said.
One of the spaces where global wage access providers have focused their attention today is on loans, in some cases, to lend cash to employers. Some platforms also come with advertising to generate revenue by offering other products that they sell to staff. However, Hausburg said the startup doesn’t use advertising or anything else that doesn’t make sense to the staff it serves.
“Focus on what your consumers need. Don’t get distracted and don’t review to optimize profits in the short term,” he noted.
Wagely’s business style is based on economies of scale. In other words, to be profitable, it has to grow from one million people to several million.
With Capria Ventures leading this new round, the startup plans to use the investment to deepen its operations in Indonesia and Bangladesh, expand into money services, add savings and insurance, and explore generative use cases powered by artificial intelligence, adding automated document processing and local language. Conversational interfaces for workers.
Recently, Wagely partnered with Bangladeshi advertising bank Mutual Trust Bank and Visa to launch a prepaid salary card for the country’s workers, which has a smartphone penetration rate of around 40% but extensive infrastructure for card bills and ATMs. It is keeping an eye on other Asian countries but has no immediate plans to enter new markets in the near future, the founder said.
Wagely doesn’t disclose the amount of debt compared to equity in this round, but it has shown that it’s a combination of both. The debt portion would be used in particular to finance salary disbursements. It’s also the first time the startup, which had earned a total of roughly $15 million in equity capital prior to this investment round, had gone into debt.
“It’s not sustainable to grow the business just fairly, especially since we’re disbursing the salaries earned to the staff upfront, and the only way to grow that business sustainably is to have a spouse who is very strong on the debt side that you provide with that help. And it’s time,” Hausburg told TechCrunch.
Employers themselves do not pay salary advances; instead, they reimburse Wagely for the amount paid to workers at the end of the pay cycle. This requires the startup to have a sufficient reserve to cover the salary advances of workers registered on the platform. The startup conducts “rigorous checks” on employer partners. and works with reputable, publicly traded personal corporations to mitigate the threat of employers failing to reimburse wage advances paid to workers after the payroll cycle ends.
“The Wagely team has demonstrated execution with impressive expansion by offering a sustainable and beneficial monetary solution for all blue-collar and underserved employers,” Dave Richards, managing spouse of Capria Ventures, said in a statement.