Companies
Need an advance on your salary this festive season? There are startups for that.
Summary
- As India’s festival season nears, salary advance startups like Refyne and KarmaLife brace for a surge in demand from their clients’ employees, particularly gig workers. These fintech startups offer quick, accessible credit solutions, addressing challenges in traditional lending.
It’s not unusual for companies to dole out a part of an employee’s salary as an advance for anything from medical emergencies to a wedding. Fintech startups that have carved out a business model from this corporate ritual are anticipating increased demand for salary advances, particularly from gig workers, as India’s monthslong festival season approaches.
(India's festival season begins next week with Krishna Janmashtami and goes on until New Year.)
Among those startups is Refyne, which rolled out its flagship product, called ‘Salary on-Demand’, in 2021. The Bengaluru-based company is backed by marquee investors including Tiger Global, QED Investors, and DST Global, and counts among clients not only Swiggy and Flipkart that have large delivery fleets but also consultancy giant EY.
“We should have 30 million customers by the end of 2025. We are at 10 million now and were at 2 million last year," said Chitresh Sharma, co-founder and chief executive officer.
Refyne, which competes with KarmaLife and SalarySe, said it disbursed ₹800 crore as salary advances, or loans against salaries, in the latest April-June quarter.
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Such fintech startups typically partner with non-banking financial companies for capital to disburse as advance salaries. A majority of their clients tend to be companies with a large number of contract employees or gig workers.
Repayments take various forms. In most cases, an employee availing an advance salary pays a convenience fee per transaction. The credited amount is settled in installments, adjusted against their salary over a few weeks or even up to a year. The interest percentage on such loans range from 18% to 24%.
Not just existential borrowing
While gig workers account for a large chunk of those seeking advances against their wages, young employees in white collar jobs too find use for such loans, although their reasons tend to not be existential.
“Those in the 30-35 age bracket who earn a couple of lakhs a month are borrowing money from our platform as most of their earnings are invested in shares, gold, SIPs, etc. Some of them take a quick loan to buy a new phone or pay for an expensive night out," said Sharma.
For such companies, partnering with fintech startups such as Refyne, KarmaLife and SalarySe to provide salary advances allows them to assist their employees without having to run an internal loan scheme.
“Given the low levels of savings, several (young) associates are likely to face financial shortfall, which is not just restricted to the month-end," said Kartik Narayan, chief executive-staffing, at recruitment firm TeamLease Services Ltd. “They also expect help from employers, who are not keen to take the administrative hassle of running a ‘salary advance’ programme."
TeamLease too has partnered with a fintech startup to offer an advance salary option to its employees. Narayan didn’t disclose the firm’s name.
At several other companies, though, a majority of such borrowers tend to be gig workers, particularly at delivery firms.
“Those who work in ‘fleet-on-the-street’ jobs go for additional trips delivering products because they will earn incentives over the next few months (during the festival season). They have to pay for their fuel for trips and therefore access our platform for early wages to go for those additional deliveries," said Rohit Rathi, co-founder and CEO of KarmaLife.
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E-commerce companies or online marketplaces incentivise their delivery executives to run more trips during their peak festival sale season as well as hire more gig workers to handle a significantly increased volume of deliveries.
KarmaLife, which has more than 60 clients in the e-commerce, logistics and food delivery sectors, counts Artha Venture Fund, Net Graph Investments, and Singularity Ventures among investors.
“The order volume (of salary advances) and the amount accessed have increased by 1.7-2x over the last one year," said Rathi. KarmaLife rolled out an option for borrowers to return money at a shorter period in February, which has seen an 8 time increase in demand since its launch.
The captive gig worker
Sunil Chemankotil, country manager for recruitment firm Adecco India, offered an insight into the raison d'être for such ‘salary advance’ fintech startups, especially given the increasing number of gig workers in India.
The Economic Survey for 2023-24 released in July projected the number of gig workers in India to expand to 23.5 million by 2029–30, accounting for 4.1% of the total livelihood in the country by then.
“Loans are not easy for contract employees, and banks ask for a lot of documents. (But as) their employers have done the validation… getting money from fintech platforms is swifter for them," said Chemankotil. “For the fintech platforms, the gig workers are similar to a captive customer base to whom they can sell their other products."
Gurgaon-based fintech startup SalarySe, which was founded in 2023 and is backed by Peak XV’s seed fund Surge, offers ‘credit on UPI’, which does not involve interest or any other cost in taking an advance.
“Using credit on UPI… someone who is earning ₹30,000-50,000 a month gets access to a product which is feasible to them," said co-founder Piyush Bagaria, adding that SalarySe is seeing strong interest from IT services, healthcare, and education businesses.
