Income streaming, just to reiterate, is the process whereby employees can access a percentage of their earned income – typically 30 to 40 per cent – at a time of their choosing for a small flat fee. It is not a loan or any form of credit. Its purpose is to end the financial stress caused by the antiquated monthly pay cycle, which forces many people to turn to payday loans and other forms of high cost credit.
It’s for this precise reason that our earliest investors included the Joseph Rowntree Foundation, Barrow Cadbury Foundation and Big Society Capital – social change organisations whose sole remit is to end UK poverty. So when the service we offer was deemed to be “almost the same”as payday loans in lenders’ eyes in a recent article in Mortgage Solutions, we felt that we had to respond and clear up the obvious confusion.
Our service has been created to destroy payday loans and stop all reliance on short term and high interest credit solutions. It’s this specific reliance on expensive credit among many UK workers that adversely affects their affordability ratings, so it’s curious that some brokers appear to be so sceptical about a service that will improve them.
The mechanics
For instance, when an employer moves from monthly to weekly pay, it’s not harder for their staff to get a mortgage. It’s the same with Wagestream. Unlike payday loans and salary advance products, when an employee uses Wagestream, the money comes from their employer, and shows up on their bank statement just like a pay packet. So there is no negative impact on mortgage affordability.
Mortgages for people who use Wagestream actually become more, not less, affordable because they are less likely to have to resort to high cost forms of borrowing, such as payday loans, credit cards and overdrafts. Therefore they achieve better credit scores.
Our mission is to enable people who would traditionally use a credit card, expensive authorised overdraft or payday loan to cover an unexpected bill avoid having to do so.
Over 130,000 UK employees across clients such as Roadchef, Rentokil Initial and Hackney Council already have access to Wagestream and are using the service just as we intended — to cover unexpected costs. It improves cash flow and provides a financial cushion that workers can use to help them between pay cycles.
So far, our data shows that the average amount being taken early by employees through Wagestream is £85 and they are making 2.2 transfers each month, with 38 per cent of all use to avoid having to take a loan.
In the months and years ahead, brokers and lenders will see the way people’s salaries arrive in their bank account start to vary slightly from month-to-month. But critically, borrowers’ salaries, outgoings and broader affordability will not change as they will continue to earn the exact same amount that appears on their payslips. Quantitatively there is zero difference.
Neither, from a lender’s perspective, will there be any impact on the underwriting process — everything a borrower does with Wagestream will appear on their monthly bank statement as normal. Income streaming is a revolution in the way income lands in a customer’s current account, not leaves it.
Employer-controlled payments
It’s also important to note that robust controls are put in place by the employer: they set the percentage of salary staff can withdraw early, the maximum monetary value of each withdrawal and the number of monthly withdrawals that are allowed. Additionally, all usage is visible to employers and any overuse is highlighted, at which point HR can intervene to discuss any issues a member of staff might be having.
Yes, if someone, and we have yet to see this, starts to draw down the maximum amount possible using Wagestream month in, month out, then a lender or broker will quite rightly ask why — but if the bills and the mortgage continue to be paid and they are avoiding high cost forms of credit, what is the issue? If there genuinely is an issue, it will come out in risk checks as normal.
Wagestream, as much as we would love it to be a panacea for spending, cannot prevent someone from spending irresponsibly or failing to budget — but it can at least remove the added pain of ultra high interest and the damage that inflicts. In that sense alone it will boost people’s credit scores and affordability, not harm them, creating a more positive — translate less leveraged — environment for lenders to operate in.
Income streaming, and it’s crucial the mortgage industry understands this, is out to make any day payday, not every day. Its goal is to provide people with the ability, as and when needed, to avoid the high interest forms of credit that create so many red flags on their monthly bank statements — and in doing so genuinely help lenders de-risk.
