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We’re into the final week of the month. For many monthly, salaried employees in the UK, that means payday - typically the last working day of the month or the last Friday of the month - is nigh.
Payday is a big deal for consumers. But it’s a pretty big deal for banks and fintechs too.
Take Stream, for example.
Stream - formerly Wagestream - started life as an earned wage access platform. For a low, flat fee, workers were - and still are - able to determine their own payday and gain access to their accrued salary.
The aim was to disrupt the payday lenders profiting from moments of financial distress.
But one rebrand and multiple products later, Stream has evolved.
They recently announced their $90 million Series D funding round, bringing the company’s total funding to $228 million. The draw for investors? A much broader workplace finance platform that helps workers to save, budget, plan and borrow. All powered by a direct data feed into employers’ systems, telling Stream when you work and how much you have earned.
As their CEO and Co-Founder Peter Briffett told me recently on episode 1032 of Fintech Insider, this puts Stream in a powerful position. “Pay is the benefit, and therefore building Financial Services around it, making it more visible, more real, [is] really powerful.”
Stream is seeing this play out in some fairly impressive customer engagement stats. Their 'Track' feature - which gives people “total visibility of their earnings in realtime” and marries this up with spend via open banking data - is “checked 4 or 5 times a day”. This rings true with what we’ve heard across countless customer interviews all around the world. Proximity to salary/direct deposit (or whatever you choose to call it) is critical if you want to ‘own’ multiple parts of a customer’s financial world.
The challenge? The establishment of mobile banking and the rise of digital challengers has created a new - fragmented - normal.
For many, salary now lands into a current account and then is steadily and effortlessly redirected. ‘Fun’ money to your fintech of choice. Savings chasing rates into an easy-to-open but equally easy-to-abandon online account. And mortgage to wherever the broker said.
Now, as the industry adjusts to this new landscape, we’re starting to see players across the spectrum experiment with different ways to muscle their way back to the financial epicentre and ‘win’ the salary battle. Let's take a look at some of those approaches.
Approach 1: “Give us your salary, we’ll automatically move it to wherever you want it to be.”
Example: Revolut
Enter the salary sorters.
These journeys take lump payments landing into accounts and allow users to easily apply automated sweeps into savings accounts or pots, saving customers the time and effort of manual money moves.
For fintechs and neobanks leaning into the ‘pots’ concept, this kind of functionality is a no-brainer. Take Revolut as an example. Its salary sorting journey allows users to easily split an incoming transaction across savings accounts and individual or group ‘pockets’.
Alongside a plethora of other tools and services, the feature appears to be bearing fruit. Writing in their 2024 annual report, CEO Nik Storonsky claimed that the company’s “position as a primary financial services provider continued to improve, with a 59% year-on-year increase in customers using us as their main bank.”
And what does being a ‘main bank’ look like to Revolut? “Customers with incoming transfers classified as salary, above 60% of average monthly salary for the respective country.” Win the salary, become the main bank.
For more traditional banks, the picture is a bit more complicated. Many are still struggling to break free from the binary of current accounts and savings accounts, lacking the underlying infrastructure to offer ‘pots’. And for most, truly embracing salary sorting would mean reducing the friction of outflows to neobanks. Making it easier for customers to shift deposits away from your balance sheet.
Not so simple.
Approach 2: “Give us your salary, we’ll double it (maybe)."
Example: Monzo
No matter how sexy the salary sorting journey is, it’s not going to significantly move the dial if you can’t persuade customers to give you a salary to sort in the first place.
Monzo’s 'Double Payday' feature is offering customers a carrot to switch the account their salary is paid into. Launched in the build-up to Christmas last year, it offers UK customers receiving a Bacs (‘Bankers Automated Clearing Service’) payment into their Monzo current account the chance to have that doubled, with 10 customers per month winning up to £10,000.
Customers subscribing to one of Monzo’s paid tiers are also eligible for its not entirely dissimilar ‘Billsback’ feature, which randomly selects and refunds utility bills and subscription payments.
Prize draws in financial services are certainly nothing new. But attaching them to salary payments is. Time will tell whether it’s enough of an incentive to persuade customers to make the ultimate switch.
Approach 3: “Give us your salary, we’ll let you have it a day (or two) early.”
Example: Chime
Now widely replicated across financial services, much of the initial momentum for Chime in the US was driven by its ‘Get Paid Early’ feature.
Launched in 2015, it allows customers receiving their direct deposits (salaries) into a Chime account to receive their funds up to 2 days ahead of their payday. This is a particularly compelling feature in markets like the US with more frequent paydays and large groups of customers living paycheck to paycheck.
As Peter Briffett at Stream rightly pointed out in our conversation; “An employer is probably the most positive financial institution in most people’s lives… While everyone else is trying to take your money, your employer actually pays you.”
Features which provide early access to that salary give banks and fintechs the chance to reclaim some of that halo effect for themselves.
Approach 4: “Give us your salary, we’ll give you some [insert streaming service] for free.”
Example: Most banks you can think of
You can have Netflix for free. Just pay in a seemingly random (but clearly highly calculated) amount of money each month, and set up at least 75 direct debits. Well, perhaps not 75 - but you get the picture.
Perhaps the most turned to option for trying to shore up deposits is some sort of semi ‘premium’ account, where ticking a number of transactional boxes makes you eligible for a combination of lifestyle-adjacent benefits.
The challenge is that many customers are savvy enough to work around whatever rules or eligibility criteria are put in place. And if the money lands, pays for a couple of bills, and then heads straight back out the door again, does that really help you at all? Are you still a “main bank”?
Approach 5: “Give us your salary, we’ll let you use our clubhouse.”
Example: Nubank
Launched in 2021, Nubank’s ‘Ultravioleta’ proposition is a little different. Whilst there is no obvious ‘income’ requirement, customers are subjected to a “credit analysis” to see if they are eligible for the enhanced account - with access to VIP airport lounges, insurance, and warranties on purchases made on the account.
Interestingly, checks are conducted at onboarding but also on an ongoing monthly basis. So a customer who starts out using Nubank on the side but gradually migrates more and more of their financial world across to the platform gets recognised and rewarded.
As of November 2024, they’ve also created and launched a physical ‘Casa Nubank Ultravioleta’ in Ibirapuera Park, São Paulo, managed in partnership with WeWork. Banks creating physical spaces for customers isn’t new (ING Direct, CheBanca! and Santander’s ‘Work Cafes’ are just a few examples) but Nubank is experimenting with creating a more gated, premium experience. All to add another tier of benefit to customers channelling more of their income to their platform.
Ultimately, payday - in all of its different forms - is something that financial services institutions can’t afford to ignore.
The good news? This is still very much a contested space, with different tactics being deployed but no obvious signs that anybody has truly nailed it.
The less good news? Winning in this new fragmented ecosystem requires ambitious, category-challenging thinking. Salary sorters save time but - in their current form at least - don’t override inertia. Perks and rewards are only good until someone offers something better.
To capture and hold onto salaries, customers need to have confidence that they can entrust their salary to you, knowing that it will achieve more and go further. I’m going to hazard a guess it might involve agentic AI.
That’s certainly the goal for Stream. “The data we have now is so rich…. Everyone’s financial life is different and everyone has different needs at different times, so knowing what those needs are and then providing educational tools around that particular need is the way that we get really engaging educational content.”
Win the salary.
Become the main bank.
Live happily ever after.
Or something like that.
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