South Africa’s SmartWage has raised a $2 million oversubscribed seed funding round to help the company reposition its business.
SmartWage was founded in 2020 with a mission to deliver earned wage access solutions to medium and large enterprises. EWA tools allow employers to grant employees access to get pay advances for wages they’ve already earned, but haven’t yet received.
SmartWage offers financial education tools for employees along with the pay advance feature.
EWA has been positioned as a way for employees to avoid high-interest payday loans. It’s been sold to employers as a way to remove a common cause of absenteeism, the lack of funds for transport, while improving overall productivity and morale.
Yet when we spoke recently with SmartWage co-founder Simon Ellis, he told us the model faces some strong headwinds.
The incentive structure just isn’t there for employers to invest the time and energy to integrate EWA. This is true even if they passed the cost of processing EWA transactions along to the employees.
To put it more bluntly, they didn’t see the ROI in making their employees a little bit happier or a little bit less stressed out.
So while Ellis still believes in EWA, and SmartWage will continue to offer it, at least for now, the team realized the business needed to expand its product offering in order to gain real traction with enterprises.
“We needed something more powerful for the employer value proposition,” Ellis told us.
Delivering Comms Tools via WhatsApp
SmartWage has therefore shifted its focus to delivering WhatsApp-based tools for employers to communicate with their “deskless” workforces.
Simon says the fact that most employees (about 90% in fact) do not have access to email creates a challenge for organizations that need to convey information to or receive information from their staff. For example, sending out payslips, receiving requests for leave, and so on.
So the SmartWage team asked, “If they don’t have email, what do they have?” The answer is WhatsApp. SmartWage estimates that 97% of South African formal employees have WhatsApp on their phones.
The company has rolled out an employee communications suite built on WhatsApp that helps employers efficiently communicate with their workforce. In this case, the value prop is tangible.
“If we can save employers time and money through digitisation, helping them communicate clearly, efficiently, and dynamically with their employees we can add real value to their operations,” Ellis said.
Today, SmartWage no longer calls itself an earned wage access company. Now it’s “an HR and communications technology company.”
While there has been no announcement on this, we’d be surprised if a name change wasn’t in the offing.
Ellis told us that this repositioning of SmartWage also repositions its competitive set.
As a pure EWA platform, SmartWage competes in South Africa with the likes of FloatPays, Paymenow, Level Finance, and others. There are other players across Africa and the Middle East with names like NowPay, Flexxpay, and Cadana.
Moving into the employee communications space pits SmartWage against companies like Wyzetalk, a South African company founded in 2011 that offers “digital employee experience solutions.”
Investors appear to like the new SmartWage positioning.
“The team at SmartWage are innovators,” said Idris Bello, founding partner of LoftyInc Capital, a SmartWage investor. “They’re building more than just an earned wage access product, and have recognised that in order to make a tangible impact on employers, they need to build a powerful way for employers to engage with their workforce.”
Other investors in the seed round include Penrose Capital and Creator Collective Capital. Also coming in were individual investors from Naspers, Dimension Data, Investec, and Standard Bank.
SmartWage plans to use the money “to expand its product and technology team and double down on solving employers' biggest problems.”
SmartWage previously raised ZAR6 million (roughly US$350,000) in 2020 to get off the ground. That round was led by FiTech Ventures.
The Global ‘Deskless’ Worker Market
SmartWage’s founders, which include Ellis and head of product Caroline Van der Merwe, see its best long-term opportunity in creating solutions unique to the deskless workforce market.
And not just in South Africa but worldwide. As an EWA SmartWage has already targeted this sector, cutting deals with the likes of KFC, Seattle Coffee, and others.
SmartWage estimates there are 2.7 billion deskless workers globally. And their employers are only investing 1% of their enterprise software spending to address employee communications.
That sounds like a pretty big available market. SmartWage has figured out that empowering companies to do nice things for their employees is a steep hill to climb. The key question is whether the new value prop is still strong enough to move the needle. To do that, you have to either make money or save money for major corporations.
If Ellis is correct in his assessment that EWA isn’t enough on its own, we would expect to see others make similar pivots. Certainly, other players have wrapped additional financial tools for employees around EWA.
We also suspect that future fundraising for other EWAs might hinge on making pivots similar to SmartWage’s.