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‘Earned wage’ startups winning over VCs with an ESG agenda

Venture capitalists are on the hunt for ESG-focused companies, prompting a surge of investment into startups offering earned wage access products, an alternative to traditional payday lending.

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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.”

Morris’ enthusiasm for the EWA model and harsh critique of payday lenders—he called their practices sometimes “ignominious"—is noteworthy given QED’s experience with LendUp, a tech-enabled payday lending platform that reportedly stopped originating payday loans last month. QED first invested in Oakland, Calif.-based LendUp in 2013, and Morris joined its board as chair in 2018.

LendUp, which has raised over $200 million from investors like GV, DCVC and PayPal Ventures, seems to have closed its core business out of ethical considerations. A letter from the company’s CEO, Anna Shultes, to the startup’s investors said that payday loans “are no longer acceptable solutions to critical stakeholders in our business and the community at large,” Axios reported.


While LendUp claimed that it was able to offer better-priced payday loans, the Consumer Financial Protection Bureau, a federal watchdog on unfair and deceptive financial practices, sued LendUp twice for alleged violations. The latest charges were reportedly settled in January for a total of $1.25 million.

QED declined to comment on what is currently happening with LendUp. But in a separate interview, Morris said that their five EWA portfolio companies differ from payday lenders by giving people access to what is already their earnings and helps “to level the playing field” for hourly workers.

Jason Lee, co-founder and CEO of DailyPay, one of the highest-valued EWA startups, said VCs are investing in earned wage access for two reasons: the segment offers a large disruption opportunity, and it meets criteria for some investors’ ESG objectives.

“Over the last three years, there has been a change in investor focus away from ‘Can we make money on this asset?’ to ‘Is this asset also creating social value in the world?’” Lee said. “In this industry, there is a lot of good happening. Employees get more control over their lives, and employers get to engage differently with their employees.”

But not everyone agrees that EWA programs solve the financial problems of low-income wage earners.

While earned wage access products may be an improvement over payday loans, they don’t necessarily help people manage their expenses, said Lauren Saunders, associate director of the National Consumer Law Center, an advocacy group for low-income earners. “All it does is add some fees, and those fees can add up, Saunders said. It also can make it more difficult to live within a budget and save.”

Since EWA is often delivered as a benefit to the employee, employers should cover transaction or subscription fees, Saunders said. She lauded Walmart for covering employees’ costs of accessing earned pay through startups Even and PayActive.

“Models that are free have a place in the market,” said Saunders, “but we should do more research about how it impacts people.”

Featured image by Filo/Getty Images

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    Written by Marina Temkin
    Marina Temkin covered the venture capital ecosystem from 2021 to 2024, based in San Francisco. Previously with Venture Capital Journal, Marina wrote about the VC industry, and she was a reporter with Mergermarket in New York and San Francisco. She also has been a financial analyst and is a CFA charterholder. Marina received an economics degree from the University of California, Davis, and she attended the CUNY Graduate School of Journalism.
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