Harvard Business Review highlights how Salary Finance can help low-income workers stay out of debt

Oct 2020

A Harvard Kennedy School study explored how fintech products like Salary Finance can benefit employees and employers alike.

This month’s edition of the Harvard Business Review highlights the reduction in staff turnover that comes from giving employees valuable financial wellbeing benefits such as those provided by Blenheim Chalcot-business Salary Finance.

The article states that stagnant wages, a rising cost of living, and increasingly irregular schedules routinely force many working Americans onto a financial knife’s edge; they’re able to pay their usual bills but lack a buffer to handle even small financial shocks. Part of the problem is that most U.S. workers are paid biweekly, and it can take as much as a week for a paycheck to clear, making the wait for compensation even longer. In addition, many workers lack the credit scores to qualify for standard market-rate loans. So to make ends meet or cover unexpected bills, they often rely on payday loans, auto-title loans, and bank overdrafts—high-cost instruments that may push them further toward financial ruin. Economic downturns, such as today’s pandemic-related recession, only increase dependence on these services.

A study conducted at the Harvard Kennedy School explored how innovative fintech products can disrupt this damaging cycle and benefit employees and employers alike.

Salary Finance offers employees low-cost loans that are automatically repaid through paycheck deductions. Based in the UK, it has expanded to the United States, where clients include the United Way and Tesla.

To evaluate Salary Finance’s impact, the researchers first compared the annualized interest rate charged by the firm with those of several personal-loan lenders. Salary Finance’s was considerably lower—it averaged just 11.8%, versus 21.9% to 71% among the conventional lenders assessed. But that’s only half the story, as an analysis of users in the UK showed. The typical Salary Finance loan goes to borrowers with very bad credit (the equivalent of a U.S. FICO score of 480 to 500). Americans with such poor ratings usually don’t qualify for personal loans; they often have to resort to payday-type loans, whose annualized interest rates generally exceed 200%. Salary Finance also reports the payment history on its loans to credit agencies, enabling “credit-damaged or credit-invisible employees [to] use these products not only to access credit but to eventually reenter the mainstream financial world,” Kumar, co-researcher, says. “That was our most exciting finding; it’s life-changing.”

Access the full Harvard Business Review article here.