Venture capitalists increasingly want to position themselves as socially responsible investors by funding businesses that benefit society—while steering clear of companies considered harmful.
An example of this may be playing out now with fintech startups catering to wage earners with low credit scores.
Until recently, people who had difficulties making ends meet between paychecks had to turn to payday loans, which have been widely criticized as predatory for charging excessive interest rates and pushing borrowers into debt traps.
But over the last five years, fintech startups have started to challenge payday lenders by allowing workers to receive all or some of their earnings before their scheduled paydays. This business concept, known as earned wage access or EWA, has been piquing investor interest.
This year alone, seven startups offering earned wage access products raised $1.13 billion in debt and equity, surpassing total funding collected by such companies from 2015 to 2020, according to PitchBook data.
QED Investors, one of the most prolific fintech-focused venture firms, backed five EWA companies around the world such as Rain in the US, Wagestream in the UK, Xerpay in Brazil, Minu in Mexico and Refyne in India.
“We recognized that consumers were not getting a good deal from payday lenders,” said Nigel Morris, QED’s managing partner and co-founder. “If hourly workers get access to what they’ve already earned, rather than wait till the end of the month, they can manage their cash flows much better.”