'Financial wellbeing' app targets low-wage workers with high-interest loans

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.

- Sarah Butler Kalyeena Makortoff

The app is pitched as an employee benefit, and gives workers access to loans with a representative annual percentage rate (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 otherwise 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 (JRF) 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, like its salary advance service, Wagestream is automatically deducting loan payments from wages. This enables Wagestream to leapfrog other essential bills and practically guarantee debts are repaid. Workers can opt to make loan repayments via direct debit and to pause payments but that requires additional negotiation with Wagestream.