How employers can help make their most vulnerable workers financially resilient?

Blue collar workers are most vulnerable to financial shocks. Low earnings combined with unpredictable expenses result in frequent cash shortfalls but also erode resilience in face of deeper health or market risks. This is particularly so for workers on pay-per-task or attendance-based payout models. COVID 19 served as an extreme example with gig worker surveys suggesting over 80% suffered material reductions in earnings whereas 44% were forced to borrow money just to make ends meet. But even more recent surveys indicate low levels of resilience, with 22% reporting they would be unable to stay afloat for more than a month, and 56% for a period of up to 6 months, if they lost their livelihood. A large majority of users perceived ongoing vulnerabilities related to unforeseen health expenditures, vehicle repairs, and even loss of work days due to illness. 

There are under-tapped opportunities for employer-sponsored fintech to create more economic security and self-reliance among workers while generating complementary business benefits. In maturer markets, like the US and the UK, employer awareness and initiatives to harness such ‘win-win’ inclusive benefits are more established. The Indian market is relatively nascent but has tremendous growth potential with a 500 million strong and counting blue collar workforce. Today, key impediments include old fashioned HR mindsets that fear ‘scope creep’ or outdated corporate benefits programs that are not tailored to the specific needs of low income workers. Few enlightened employers (and aggregators) have paved the way here with Fintech partnerships to co-create technology-driven models that are viable at scale. These point to three pivotal ways in which employers can add value. 

Work data

As employers adopt technology to digitise end-to-end workflows, including worker verification, onboarding, attendance, task allocation, evaluation, payroll, compliance, and upskilling, the availability of structured worker data has increased. This trend is being driven by new-age HRMS solutions on the market as well as broader inter-company digitisation initiatives. Digital gig marketplaces which connect demand and supply of micro services are at the forefront of workflow digitisation with every service transaction being recorded digitally.

But even lower frequency but verifiable data related to worker roles, earnings, and employment histories can help fintechs assess risk and serve low-income earners. Work data performs significantly better than traditional credit markers like Bureau scores to enhance inclusion of new-to-credit or thin file borrowers as well as optimise prediction efficiencies associated with credit or claim outcomes. A recent study from the US auto loan industry showed that digitally verified employment data could expand loan origination rates by 35%, extending to 146% for the most riskiest categories (‘deep subprime’). The same study also demonstrated a near 20% increase in lender profit as market expansion effects dominated delinquency costs. 

The Payout-link

Today, many employers statutorily deduct tax or pension payments for salaried workers. The same mechanism can be extended to voluntary, consent-based financial services for non-salaried workers. The ability to auto-deduct from payout, whether it be for a loan repayment, investment contribution, insurance premium, or a voluntary pension transfer, can prove a powerful way to solve behavioural challenges and facilitate regular, affordable financial commitments – and thus serve as a gateway to diversified financial inclusion. 

With digital technologies, platform level rules as well as user level preferences can be built on top to optimise ticket sizes and allow flexibility. For example, contributions can be linked to period earnings thresholds such that savings can be confined to surplus periods or loan repayments can be waived and rolled over in low earning periods.

According to research done at the Harvard Kennedy School, this ability to deduct from salary drives greater efficiency and inclusiveness of fintech solutions by reducing the cost of servicing customers. Payment collection is an expensive operation, especially for small ticket sizes. The payout-link is a regulatorily compliant and cost-effective mechanism to automate this process.

Trust Builder & Advocate

Employers enjoy the vantage point of having existing trust equations with their workers, who rely on them for their daily livelihood and remuneration, as well as having deep insights on their needs and behaviours. With this also comes the responsibility to protect their interests, especially in ways that workers may individually find hard to do. 

The ability to curate and negotiate the right set of financial tools and terms for their workers is essential. From negotiating favourable group insurance policies and transparent claims processes to enabling financing of productive investments such as upskilling modules or bike rentals, employers can design a slew of financial incentives that maximise benefits for workers. They can also carry out necessary diligence on financial partners to ensure services channeled are reliable, regulatory compliant, and safeguard worker interests (including privacy and data security).

Further, employers are well positioned to create the necessary awareness, education and capacity building among their workforce to avail these services responsibly and deepen gains from their use. Institutional mechanisms to embed financial product related communication and training in existing organisational processes can generate trust and lead to marked increases in takeup rates. This in turn reduces cost of acquisition for fintechs which allows them to focus on core aspects of digital service provision for better performance outcomes. 

Harnessing Synergies

B2B2C channels that rely on strong partnership between employers and Fintechs can create new paradigms of value, efficiency, affordability, and ultimately viability when it comes to provision of financial services to low income earners. 

A simple application from combining the three elements of work data, payout-link and trust equations is provision of Earned Wage Access, a transparent and safe mechanism for financially stressed workers to access ‘advance funds’ against accrued earnings for unplanned needs, more affordably than exorbitant alternatives available in the informal market. Here, periodic attendance and earnings data can help determine worker eligibility and amount of accessible funds. The payout link can make the collections seamless to support a recurring model for every payout cycle. And the trust equation can generate product awareness and instil responsible use of credit. A simple model like this can extend to any company or sector where workers are not paid instantly. But the need is most acute for lower-earning, non-salaried workers, who suffer significant payment delays and don’t have easy access to credit cards and overdraft accounts.

Removing financial stress of workers leads to higher attentiveness and productivity at the workplace. Research conducted in 2021 on low-income piece rate manufacturing workers shows that 81% of the wage earners were under debt and were showing signs of stress at work. When provided with flexible access to their salary, worker productivity increased by 7% and they made fewer costly mistakes. The early liquidity helped them immediately pay off debts and invest in household essentials, with these payments made on the same day in a majority of cases. Workers with more fluid access to their wages carried a 40% greater chance to pay their loans on time. In contrast, workers who did not receive any flexible payout options did not show any change in their behaviour.

Finance should be invisible and only serve as a means to attain higher goals – such as enhancing quality of life, unlocking aspirations or securing our children’s future. Long work days, constant financial stress, and educational limitations makes it all the more critical for blue collar workers to access simple solutions with low cognitive overhead. We are in a new age of digitally embedded finance. Employers have a set of simple yet effective tools at their disposal to combat stress and breathe new life into the work-climate. In partnership with innovative Fintechs, they can precipitate measurable and positive impact on the lives of the employees.

Author: Badal Malick, co-founder & CBO of Karma Life