Need a paycheck advance this holiday season? There are startups that can help.

It’s not uncommon for companies to pay a portion of an employee’s salary as an advance payment for everything from medical emergencies to weddings. Fintech startups that have carved out a business model from this corporate ritual are expecting increased demand for salary advances, especially from temporary workers, as India’s months-long festival season approaches.

(The festival season in India begins next week with Krishna Janmashtami and runs through the New Year.)

Among these startups is Refyne, which launched its flagship product, Salary on-Demand, in 2021. The Bengaluru-based company is backed by major investors including Tiger Global, QED Investors and DST Global, and its clients include not only Swiggy and Flipkart, which have large delivery fleets, but also consulting giant EY.

“We should have 30 million customers by the end of 2025. Now we have 10 million and last year we had 2 million,” said Chitresh Sharma, co-founder and CEO.

Refyne, which competes with KarmaLife and SalarySe, said it has paid out ₹800 crore in the form of salary advances or loans against salary in the last April-June quarter.

These fintech startups typically partner with non-banking financial firms to raise capital to pay out as salary advances. Most of their clients are companies that employ large numbers of contract or temporary workers.

Repayments come in many forms. In most cases, an employee using a salary advance pays a convenience fee for each transaction. The amount posted is settled in installments, adjusted to his salary over a period of weeks or even a year. Interest rates on such loans range from 18% to 24%.

Not just existential borrowing

Although a large proportion of people applying for salary advances are temporary workers, young white-collar workers also find use for this type of loan, although their reasons are usually not existential.

“People in the age group of 30-35 years, who earn a few lakhs a month, borrow money from our platform as most of their earnings are invested in stocks, gold, SIPs, etc. Some of them take a quick loan to buy a new phone or pay for an expensive night out,” Sharma said.

For such companies, partnering with fintech startups like Refyne, KarmaLife, and SalarySe to provide salary advances allows them to help their employees without having to launch an internal lending program.

“Given the low level of savings, many (young) associates are likely to face a financial shortfall that is not limited to the end of the month,” said Kartik Narayan, HR director at recruiting firm TeamLease Services Ltd. “They are also looking for help from employers who are not keen on taking on the administrative hassle of running a salary advance scheme.

TeamLease has also partnered with a fintech startup to offer its employees an early payday option. Narayan did not disclose the name of the company.

In several other companies, however, the majority of such borrowers are temporary workers, especially in courier companies.

“Those who are working in fleet-on-the-street roles are going out for extra product deliveries as they will be getting incentives in the next few months (during the festival season). They need to pay for fuel for their trips and hence they have access to our platform to get paid in advance and be able to make these extra deliveries,” said Rohit Rathi, co-founder and CEO, KarmaLife.

E-commerce companies and online marketplaces are motivating their suppliers to deliver more runs during the peak festival sales season, and are also hiring more temporary workers to cope with the significantly increased volume of deliveries.

KarmaLife, which has more than 60 clients across e-commerce, logistics and food delivery, counts Artha Venture Fund, Net Graph Investments and Singularity Ventures among its investors.

“The volume of (salary advance) orders and the amount accessed has increased by 1.7-2x in the last one year,” Rathi said. KarmaLife introduced the option to allow borrowers to repay their money in a shorter period in February, which has led to an eight-fold increase in demand since its launch.

Casual worker in captivity

Sunil Chemankotil, country director, recruiting firm Adecco India, shared his insights on the rationale behind such fintech startups offering ‘salary advances’, especially given the growing number of temporary workers in India.

The Economic Survey 2023-24, released in July, forecasts that the number of temporary workers in India will rise to 23.5 million by 2029-30, accounting for 4.1% of the country’s total income.

“Gains are not easy for gig workers, and banks require a lot of documentation. (But because) their employers have done the validation… it’s faster for them to get money from fintech platforms,” Chemankotil said. “For fintech platforms, gig workers are like a closed customer base to which they can sell their other products.”

Gurgaon-based fintech startup SalarySe, founded in 2023 and backed by Peak XV’s Surge seed fund, offers ‘UPI credit’ that comes with no interest or any other costs associated with receiving the advance.

“Using UPI credit… someone who earns ₹“Salary of $30,000-$50,000 a month gives them access to a product that is feasible for them,” said co-founder Piyush Bagaria, adding that SalarySe has seen significant interest from companies in the IT services, healthcare and education sectors.