Low-wage workers are being offered a controversial new type of high-interest loan of up to £25,000 through the “financial wellbeing” app Wagestream, a specialist lender that has signed deals with some of the UK’s best-known employers including Asda and Pizza Express.
The app is pitched as an employee benefit, and gives workers access to loans with a representative APR of between 13.9% and 19.9%, meaning at least 51% of borrowers will get that rate.
The ultimate cap is negotiated with each employer, at up to 34.9% APR.
The “workplace loans” are being rolled out to workers at a selection of companies, including those already using Wagestream’s core salary advance service, which charges workers a small fee to access up to half their wages early before automatically deducting the sum at payday. It is not clear how many of Wagestream’s 1,311 clients – which include Superdrug, Domino’s, Halfords, Schuh and a number of NHS trusts – are already offering loans. Companies working with Wagestream do not lend the money to their workers, and do not receive commissions on the loans.
Wagestream, which also offers budgeting tools and savings pots to help workers manage their finances, says it offers an ethical alternative for low-wage workers who would otherwise be pushed to higher-cost loans, with many being charged an average APR of 62% before turning to Wagestream.
However, critics say Wagestream – which is backed by social impact investors including the Joseph Rowntree Foundation via the Fair by Design Fund, as well as the former Wonga payday loan investor Balderton Capital – is making it too easy for low earners to fall into debt, by offering salary advances and loans in tandem.
There are also concerns that, as with its salary advance service, Wagestream is automatically deducting loan payments from wages. This enables Wagestream to leapfrog other essential bills and practically guarantee that debts are repaid. Workers can opt to make loan repayments via direct debit and to pause payments but that requires additional negotiation with Wagestream.
Adam Butler, the public policy manager at StepChange Debt Charity, said lenders who took payment directly from wages needed to ensure their loans were not forcing customers to compensate elsewhere, including through “additional borrowing, cutting back on essentials and missing bills”.
Sara Williams, a debt adviser, campaigner and author of the Debt Camel blog, said she had “serious concerns” about a company trying to sell high-interest loans to customers it had signed up to salary advance schemes, which are free to use once a month and then charge a small set fee rather than interest.
“A business model that gets people to take increasing amounts of short-term 0% debts and then sells them an expensive loan to clear it raises serious concerns, and the employer should consider if this can really align with their workers’ best interest,” she said.
Workers who earn less than £2,000 a month before tax told the Guardian that they were able to borrow at least £1,000 within hours after filling in a quick online form.
Nadine Houghton, a national officer for the GMB union, which represents thousands of Asda workers, said: “For low-paid workers to have the ability to access credit at such high interest rates at the click of a button – it’s like payday loans.”
Houghton said the requirement for lending raised questions about sustainable wages at low-wage employers. “We want our members to be paid properly for the work they do so they can have savings and don’t have to have loans.”
One Asda worker told the Guardian that she took out a £1,000 loan in March after she “got into a bit of a pickle” using Wagestream to access up to half her pay early each month. The interest rate was much lower than that previously offered by doorstep lenders and she would not have been able to borrow money from most mainstream lenders because of her credit history. However, she admits: “I did originally take out the loan to get back to square one.
“One month I was short on everything, and [organising the loan] was really easy and I thought: ‘Let’s see if I can give it a go.’ It took less than 10 minutes to fill in everything and was really easy, and the money was in my account within two hours.”
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Asda said: “Since partnering with Wagestream in 2023, thousands of colleagues have benefited from the financial wellbeing services offered. These include optional salary advances and a savings product.
“For those who choose to apply for a loan through the Wagestream platform, all applications are assessed for affordability and creditworthiness in line with FCA regulations governing consumer credit.”
A Pizza Express spokesperson confirmed that its staff had access to the loans as part of a “range of tools” helping employees to access discounts, financial coaching and savings products. It said participating was voluntary and that the company did not pay for the platform or receive any financial incentives when staff used it.
Ascension, which manages the Fair by Design Fund through which the Joseph Rowntree Foundation became an early-stage investor in Wagestream, said that it “recognised the concerns raised” but that many families did not have savings to cover unexpected expenses and may have no other option but to turn to costly payday or doorstep lenders as a result.
“Our priority is to support models that can provide more affordable, responsible alternatives, using stronger data and affordability checks than were available before,” Ascension said. “This is not a substitute for fair wages or a robust welfare system but it can help reduce reliance on the most harmful forms of credit.”
A Joseph Rowntree Foundation spokesperson echoed those comments, saying that while the government needed to improve support for households in financial hardship, “for now, the need for credit among those living in hardship continues. Against this backdrop, there is a role for responsible and impact-focused lenders to help families manage the cost of essentials during periods of hardship.”
Wagestream said: “Wagestream was founded on a social charter to improve workers’ financial wellbeing. By partnering with employers, we help people who are underserved by traditional financial institutions to earn, learn, save, spend and borrow on their own terms.
“We are proud to offer a fair, accessible alternative which helps our members to build better financial futures. We are confident that Wagestream’s products deliver positive outcomes, and we remain dedicated to building a more inclusive and equitable financial system.”