When Andy, a server in Pizza Express, found himself in financial hot water before payday, getting a cheap advance on his wages was easy. Pizza Express, like hundreds of other employers with low-wage workers – including Asda, Next, Superdrug, Burger King and a number of NHS trusts – had struck a deal with the “financial wellbeing” app Wagestream, giving workers access to a suite of services including its key moneymaker: salary advance.

For just £1.75 per withdrawal, Andy could take up to half of his wages early, with the agreement that he merely gave up the sum at payday. But the cheap, easy-to-use service meant he was soon falling behind.

So when Wagestream launched “workplace loans” this year, a service that offered borrowers up to £25,000, he jumped at the chance to balance his finances, knowing he was unlikely to get approved for a loan elsewhere.

But at 29.9% APR, the £1,000 loan he received was not exactly cheap. And as with its wage advance scheme, his repayments were automatically deducted from his pay; the lender’s returns were secured before Andy’s paycheck even hit his bank account, and before he had paid other essential bills.

Andy is concerned about how easy it was to slip into debt, particularly through an app marketed through his employer as an “essential service”. “It is easy to fall into a negative pattern, streaming wages early,” Andy told the Guardian. “But imagine streaming wages and also loan payments. You could end up being a wage slave, having to work just to pay your debts back.”

And he is not alone. A growing number of debt campaigners and unions are raising concerns about the rise of so-called workplace loans being offered by salary advance firms that have largely avoided public scrutiny.

Wagestream was launched in 2018 by Portman Wills, now its chief technology officer, and Peter Briffet, its chief executive – who both retain a stake – bursting on to the scene with an aim of eradicating a payday lending sector that was teetering on the brink of collapse.

That was the year that Wonga, the now-reviled payday lender that charged extortionate interest rates topping 5,000%, fell into administration. It was a spectacular fall from grace, with Wonga once having been feted as a digital innovator and backed by the UK’s largest charity, the Wellcome Trust.

Wonga’s demise and the backlash that followed left a gap in the market for more ethical lenders willing to serve low-wage earners. Wills and Briffett started building a financial app that they said would destroy the poverty premium, referring to a phenomenon where some of the poorest pay disproportionately higher fees for services and loans.

They started with cheap wage advances – an unregulated product in the UK – but also offered budgeting tools, savings pots and financial coaching alongside its money-making proposition.

They issued a social charter and branded Wagestream as a “financial wellbeing company”, helping to secure backing from high-profile charities including the Joseph Rowntree Foundation and Barrow Cadbury Trust through the Fair By Design investment fund, who were keen to see Wonga alternatives enter the market. The UK government-owned British Business Bank’s venture capital subsidiary, British Patient Capital, also invested in the lender, which clinched ethical B-Corp status in 2022.

But Wagestream itself is not a charity and its investors, including the former Wonga investor Balderton Capital, will eventually expect to see returns. Other shareholders include the venture capital funds Northzone, QED, Smash Capital and BlackRock.

Wagestream is still loss-making, having last reported a £22.2m pre-tax loss in 2024, despite handing out 20.6m wage advances worth a total of £1.5bn. But loans could be the key to supercharging its earnings, having so far relied on fees – both from some employers and millions of staff accessing its wage advances. It said growing revenues in the upcoming year would outpace costs and start “moving the business towards profitability in future periods”.

When asked whether Wagestream had always planned to branch into more lucrative interest-charging loans, Briffet told the Guardian: “Our vision is to provide pretty much all financial services that are feasible through the employer.”

About 15,000 people have taken out one of Wagestream’s “workplace loans” so far, with most borrowing between £2,000 and £5,000, repaid over 24-36 months. While workers can take out only one loan at a time, this could change in future if the company deemed it to be “appropriate”, Emily Trant, Wagestream’s chief impact officer, told the Guardian. The wider rollout of loans is being funded through a £300m debt deal with the US bank Citi.

It is not clear which of Wagestream’s clients are offering loans to their workers. But with few rivals in the UK, Wagestream workplace loans have an almost unique position, with its closest being a company called Salary Finance.

By working through employers, Wagestream can directly market loans to workers already familiar with its streaming model. It can gain exclusive access to granular payroll data that can help it offer competitive interest rates. By automatically taking workers’ repayments directly out of wages, it is in an enviable position among lenders, in effect guaranteeing that debts are repaid. Direct debit payments are allowed but are not the default arrangement.

The debt charity StepChange warned that lenders that deduct payments from wages needed to be alert to the riskthat borrowers could end up resorting to “additional borrowing, cutting back on essentials and missing bills”.

Wagestream says representative APR on workplace loan is between 13.9% and 19.9%, meaning at least 51% of borrowers will get that rate. But the ultimate cap is negotiated with each employer, topping out at 34.9% APR. Wagestream insists that its model still saves borrowers an average of £593 per loan, with customers having been charged an average APR of 62% by former lenders before turning to the app.

But the confluence of streaming and loans is causing concern, even among borrowers. Another Pizza Express worker told the Guardian that July was the first time in nine months that he had not accessed part of his pay early. “The temptation is there and once you start it is very hard to get out of the cycle,” he said. “I don’t have the willpower – and to stop yourself, it’s on you.”

He was concerned about the availability of Wagestream’s loans, particularly as they have “quite high interest rates”. He added: “I try to stay away from it. It feels like it’s a trap. It’s too readily available and like eye candy. You open the app and there are a lot of bright colours.”

A PizzaExpress spokesperson said staff had had access to Wagestream since November 2021, and it was part of a “range of tools our team members can use”. They added: “Participation is entirely voluntary and PizzaExpress does not pay for the platform nor receive any financial incentives for team members using any of the services.”

Wagestream bosses said they did not consider how much or how often customers were taking wages early through its core service when assessing whether customers could afford its loans. “We don’t view streaming as credit. It’s a different way that somebody is managing their day-to-day payments,” Trant said. “So it really doesn’t factor into affordability.”

Wagesteam later said in an emailed statement that salary advance habits were part of a wider assessment of loan applications, but it refused to provide any further information when the Guardian requested clarification.

Part of the issue is that this type of loan, while regulated in the UK, is so new that there is little to no data on the long-term impact on vulnerable borrowers.

In the meantime, debt and financial inclusion experts say wage advances or “streaming” should be viewed as loans. “These services should always be referred to as loans or credit as that’s exactly what they are. Using terms like ‘streaming’ or ‘salary advance’ can downplay the fact that people are borrowing money,” said Mick McAteer, a former FCA board member and a co-founder of the Financial Inclusion Centre research organisation. “Any form of credit could be called ‘salary advance’.”

Wagestream’s website is peppered with claims that using its platform, which includes savings and budgeting tools, boosts retention and working hours. When asked if that was a result of people needing to work more to repay their debts or catch up on streaming, Wagestream disagreed and said it was in part a result of its real-time app showing how much workers earned per hour and boosting overall financial engagement with staff.

Ascension, which manages the Fair by Design Fund through which the Joseph Rowntree Foundation became an early-stage investor, said it “recognised the concerns raised” about Wagestream’s loans but that its priority was finding “more affordable, responsible alternatives” to costly payday or doorstep lenders by “using stronger data and affordability checks than were available before”.

It added: “This is not a substitute for fair wages or a robust welfare system, but it can help reduce reliance on the most harmful forms of credit.”

A Joseph Rowntree Foundation spokesperson echoed those comments, saying the government needed to ramp up efforts to support families in financial hardship to help end dependence on unaffordable credit. “For now, the need for credit among those living in hardship continues. Against this backdrop, there is a role for responsible and impact-focused lenders to help families manage the cost of essentials during periods of hardship.”

Wagestream said it applied “rigorous affordability and underwriting criteria to every loan issued. Our comprehensive lending assessment includes detailed information from payroll, open banking, credit bureaux, and usage of other Wagestream products.

“Wagestream was founded on a social charter to improve workers’ financial wellbeing. By partnering with employers, we help people who are underserved by traditional financial institutions to earn, learn, save, spend and borrow on their own terms.”

*Names have been changed

Low-wage workers are being offered a controversial new type of high-interest loan of up to £25,000 through the “financial wellbeing” app Wagestream, a specialist lender that has signed deals with some of the UK’s best-known employers including Asda and Pizza Express.

The app is pitched as an employee benefit, and gives workers access to loans with a representative APR of between 13.9% and 19.9%, meaning at least 51% of borrowers will get that rate.

The ultimate cap is negotiated with each employer, at up to 34.9% APR.

The “workplace loans” are being rolled out to workers at a selection of companies, including those already using Wagestream’s core salary advance service, which charges workers a small fee to access up to half their wages early before automatically deducting the sum at payday. It is not clear how many of Wagestream’s 1,311 clients – which include Superdrug, Domino’s, Halfords, Schuh and a number of NHS trusts – are already offering loans. Companies working with Wagestream do not lend the money to their workers, and do not receive commissions on the loans.

Wagestream, which also offers budgeting tools and savings pots to help workers manage their finances, says it offers an ethical alternative for low-wage workers who would otherwise be pushed to higher-cost loans, with many being charged an average APR of 62% before turning to Wagestream.

However, critics say Wagestream – which is backed by social impact investors including the Joseph Rowntree Foundation via the Fair by Design Fund, as well as the former Wonga payday loan investor Balderton Capital – is making it too easy for low earners to fall into debt, by offering salary advances and loans in tandem.

There are also concerns that, as with its salary advance service, Wagestream is automatically deducting loan payments from wages. This enables Wagestream to leapfrog other essential bills and practically guarantee that debts are repaid. Workers can opt to make loan repayments via direct debit and to pause payments but that requires additional negotiation with Wagestream.

Adam Butler, the public policy manager at StepChange Debt Charity, said lenders who took payment directly from wages needed to ensure their loans were not forcing customers to compensate elsewhere, including through “additional borrowing, cutting back on essentials and missing bills”.

Sara Williams, a debt adviser, campaigner and author of the Debt Camel blog, said she had “serious concerns” about a company trying to sell high-interest loans to customers it had signed up to salary advance schemes, which are free to use once a month and then charge a small set fee rather than interest.

“A business model that gets people to take increasing amounts of short-term 0% debts and then sells them an expensive loan to clear it raises serious concerns, and the employer should consider if this can really align with their workers’ best interest,” she said.

Workers who earn less than £2,000 a month before tax told the Guardian that they were able to borrow at least £1,000 within hours after filling in a quick online form.

Nadine Houghton, a national officer for the GMB union, which represents thousands of Asda workers, said: “For low-paid workers to have the ability to access credit at such high interest rates at the click of a button – it’s like payday loans.”

Houghton said the requirement for lending raised questions about sustainable wages at low-wage employers. “We want our members to be paid properly for the work they do so they can have savings and don’t have to have loans.”

One Asda worker told the Guardian that she took out a £1,000 loan in March after she “got into a bit of a pickle” using Wagestream to access up to half her pay early each month. The interest rate was much lower than that previously offered by doorstep lenders and she would not have been able to borrow money from most mainstream lenders because of her credit history. However, she admits: “I did originally take out the loan to get back to square one.

“One month I was short on everything, and [organising the loan] was really easy and I thought: ‘Let’s see if I can give it a go.’ It took less than 10 minutes to fill in everything and was really easy, and the money was in my account within two hours.”

Asda said: “Since partnering with Wagestream in 2023, thousands of colleagues have benefited from the financial wellbeing services offered. These include optional salary advances and a savings product.

“For those who choose to apply for a loan through the Wagestream platform, all applications are assessed for affordability and creditworthiness in line with FCA regulations governing consumer credit.”

A Pizza Express spokesperson confirmed that its staff had access to the loans as part of a “range of tools” helping employees to access discounts, financial coaching and savings products. It said participating was voluntary and that the company did not pay for the platform or receive any financial incentives when staff used it.

Ascension, which manages the Fair by Design Fund through which the Joseph Rowntree Foundation became an early-stage investor in Wagestream, said that it “recognised the concerns raised” but that many families did not have savings to cover unexpected expenses and may have no other option but to turn to costly payday or doorstep lenders as a result.

“Our priority is to support models that can provide more affordable, responsible alternatives, using stronger data and affordability checks than were available before,” Ascension said. “This is not a substitute for fair wages or a robust welfare system but it can help reduce reliance on the most harmful forms of credit.”

A Joseph Rowntree Foundation spokesperson echoed those comments, saying that while the government needed to improve support for households in financial hardship, “for now, the need for credit among those living in hardship continues. Against this backdrop, there is a role for responsible and impact-focused lenders to help families manage the cost of essentials during periods of hardship.”

Wagestream said: “Wagestream was founded on a social charter to improve workers’ financial wellbeing. By partnering with employers, we help people who are underserved by traditional financial institutions to earn, learn, save, spend and borrow on their own terms.

“We are proud to offer a fair, accessible alternative which helps our members to build better financial futures. We are confident that Wagestream’s products deliver positive outcomes, and we remain dedicated to building a more inclusive and equitable financial system.”

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