Interest Rate Hikes Boost Demand for On-Demand Pay

The on-demand economy is growing, and it’s no longer limited to mobility, food and entertainment services like Uber, DoorDash and Netflix.

According to Andrzej Nowak, CEO and founder of Poland-based FinTech Flexee, growing inflation and sky-high interest rates on small, short-term loans are driving on-demand pay growth in Europe, where more and more employees are in need of solutions that give them flexible access to their earned wages.

It’s a service his company provides to employees in its home market of Poland, where he says cash-strapped employees could use an affordable, cost-effective alternative to the expensive small loans they take out while waiting on their next paycheck.

“For example, if you want to take a 200 euro or dollars loan, you will have to pay about 25% interest on that provision. [Roughly] $150 million of those non-banking loans are issued every month on the market, indicating that there is a huge demand from employees’ perspective,” Nowak told PYMNTS in an interview.

To meet that demand, the Flexee app gives employees access to part of their future wages on any day of the month, and upon request, the funds are instantly transferred to their account. Workers can also track how much earned money they have accumulated and the amount they can already pay out, making it easy to budget and plan out expenses ahead of time.

The Warsaw-based FinTech, founded in 2020, is now looking to expand, having recently raised $3 million that Nowak said will be used as a working capital to finance payouts while it looks to secure more funds from financial institutions in the future.

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It’s Like Buy Now, Pay Later

According to Nowak, demand for on-demand salary payment is rising in Europe, and the company’s research shows that in the last year alone, 40% of employees in Poland needed funds before they received their next paycheck.

“They were searching for a small amount, $200 in average, and they were searching for it [barely] seven days before they got their salaries,” he noted.

In terms of sectors driving demand, he said the conversion rate with insurance companies is about 20%-30%, whereas it’s much higher with gig economy companies — up to 50% or half of their employees are using the service, with the conversion rate increasing the longer the company has been working with Flexee.

Related: Report: Freelance Tech Talent Follows Faster Digital Payments

This is because the product is still a new concept to some employers and employees: “We need to educate the market — on one side, let employers know that a solution like salary on-demand exists, and on the other also educate employees that they can pay out their salaries earlier in the month,” he explained.

Moving forward, he said the goal is to expand beyond Poland to the Central and Eastern Europe (CEE) region, growing its user base from 20,000 to 100,000 by the end of this year as part of plans to build a strong European player that can attract funding from major private equity funds and foreign investors.

“A nice comparison is the buy now, pay later sector which is booming in Europe. People love the service because at the end of the day, they are getting [a cheaper alternative to traditional credit],” Nowak said. “It’s the same in the salary on-demand space because together with employers, we are giving employees access to wages at zero cost so that they will no longer have to use short-term loans.”

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