Payroll service aims to stamp out payday lending

New Zealand payroll technology company PaySauce is aiming to break the “payday poverty cycle” by launching a new service allowing employees to access their earnings early. 

Across New Zealand, the monthly or fortnightly pay-cycle drives many vulnerable people to predatory payday lenders for small stop-gap loans. With lenders charging extortionate interest rates of 500 and even 700 percent per annum, small loans can escalate quickly, leaving people hopelessly indebted and stuck in a vicious cycle from which they struggle to escape. 

PaySauce’s new draw-down service, believed to be a global first, gives employees interest-free access to money they have already earned as soon as they earn it, directly from their payroll service provider. Employers can now offer their employees the chance to take an interest-free advance on their next pay packet for a fixed nominal fee of $3, regardless of the amount advanced. Now, payday can be any day they need.

PaySauce has been working on development of this service for some time, and will launch its pilot to SMEs on 21 September. It is now seeking expressions of interest from employers wanting to act as foundation partners in offering the service.

PaySauce CEO and co-founder Asantha Wijeyeratne (pictured) says, “We are unashamedly trying to end payday lending once and for all. People occasionally get caught short financially, but driving them to predatory payday lenders can be disastrous for them, their families, and their employers. One missed payment and they can be locked in a debt spiral. This is particularly crazy when the initial loans are often for less than the amount of money an employee has already earned in that pay cycle. You should not be paying 500-plus percent to access money you have already earned!

“Our service allows workers to be paid any day they like, allowing them to draw down funds as soon as they are earned, instead of waiting till the end of the pay cycle. By doing so, we hope we can help prevent Kiwi workers needing to take ultra-high-interest loans to cover short funding gaps. We are inviting companies to participate and join this PaySauce initiative – it’s a great employee benefit, but it is also great for employers, as it helps keep employees’ stress levels down and productivity up.”

Andrew Barnes, PaySauce’s chairman and the entrepreneur behind Perpetual Guardian’s four-day week, says, “Payday lending is a terrible scourge that takes advantage of vulnerable people. There is a real movement to get rid of payday lenders once and for all, and not just in New Zealand – in the UK, Jeff Bezos and Bill Gates have recently invested in a mobile app designed to end what they call the payday poverty cycle. 

“As a payroll software provider, PaySauce is well positioned to help employers support any workers who need a little bridging finance between paydays – we know from working with businesses around the country employers want to do the right thing by their people, and this service can potentially make a big difference in the lives of workers and their families. The team at PaySauce wants to drive positive change, and feels New Zealand’s ever-progressive business environment will take to this concept with interest and enthusiasm.

“There are a number of senior community leaders shining a light on the damage predatory lenders do in poorer communities across New Zealand. Kris Faafoi, the Commerce and Consumer Affairs Minister quite rightly says that these lending practices trap people and whanau in an appalling debt spiral which is very hard to get out of. But so far, those leaders have struggled to make headway as there has not been a genuine funding alternative for vulnerable people who get caught short. PaySauce’s initiative is that alternative, and we hope it allows New Zealand to finally move past predatory loan practises.”

Patrick Gamble, strategic advisor to PaySauce, says the company is now looking for employers to act as its foundation partners in the pilot: “The real success of this technology will be driven by progressive employers who want to provide their employees with an alternative to predatory payday lenders. Of course, employers need to maintain the integrity of their business, so PaySauce payday advances will be limited to funds an employee has already earned, which in most cases will be 50 percent of a pay packet. There is no fee to the employer for this service, and the maximum fee an employee will pay will be $3 (regardless of the amount of the advance). Also, as we are the payroll service provider, PaySauce can ensure the advance is deducted directly out of the employee’s next pay packet, meaning employer and employee are always square by the next pay day.”