Revolut is seeking to win customers from payday lenders after launching a product which allows employees to access their wages early.

The £24bn financial technology company will let users draw up to half their accrued salaries ahead of time through the scheme, called Payday, and is in talks with several businesses to sign them up. 

It will advance staff money from their pay packets for a fee of £1.50 per transaction amid a scramble to convince more customers they should pay their salary into a Revolut account.

Salary advance schemes are not covered by credit rules and remain unregulated in the UK, although the City watchdog has previously warned they could encourage borrowers to enter a cycle of debt.

Revolut – which last month raised $800m in a deal valuing it as Britain’s biggest ever privately owned tech business – is seeking to develop a “superapp” of financial products featuring everything from current accounts to cryptocurrency trading and holiday rentals. It applied for a full UK banking licence in January.

Analysts said the latest product launch will allow Revolut to accelerate its growth as a lender without being burdened by regulatory red tape. It remains a small player in traditional borrowing in the UK.

Adam Davis, head of client services at the fintech consultancy 11:FS, said: “Revolut is not big in lending, except in Eastern Europe, but this is lending they can facilitate with less complexity, from a regulatory perspective.”

The salary advance product sets Revolut up as an alternative to payday lenders that charge very high interest rates. One of the most notorious, Wonga, collapsed in 2018.

It also provides an alternative to the surge in “buy-now-pay-later” rivals, such as Sweden’s Klarna, which was valued at $46bn at its last financing.

These companies let consumers buy products in instalments, but have been criticised for encouraging people to spend more than they can afford.

Revolut said that Payday “removes the financial stress” and “avoids reliance on high-cost credit products such as payday loans”.

However, the service is still likely to expose the SoftBank-backed fintech app to accusations that it is seeking to profit from vulnerable borrowers.

The Financial Conduct Authority warned in July last year that salary advance schemes risk encouraging consumers to live hand-to-mouth.

It said: “If an employee takes their salary early, it is more likely they will run short towards the end of the next payday, potentially leading to a cycle of repeat advances and escalating fees.”

Like other financial technology apps, Revolut has been looking for new ways to make money from its 16m users – many of whom have primary bank accounts elsewhere.

Its revenues in 2020 rose to £222m, while losses doubled to £201m. This was partially offset by the surging value of Revolut’s cryptocurrency holdings, which produced a £38.7m windfall.

‘Money they can’t afford’

Products such as Payday could encourage more people to adopt Revolut as their primary current account.

It is understood that the business will only provide access to 50pc of a borrowers’ accrued wages, and will include alerts in the app if people are borrowing too frequently. There will be no block on borrowing to fund risky purchases, such as cryptocurrencies, although Revolut has built-in safety tools for users to limit gambling purchases.

Justin Modray, director of Candid Financial Advice, said the scheme could be more cost effective for consumers than other short-term loans. However, he added: “The one big negative is it becomes easier for people to spend money they cannot afford."

Advance salary payments do not not require a credit check, and may not impact credit history. 

In a review for the FCA by its former chief executive, Christopher Woolard, published in January, no regulation was recommended for the early salary access market because it was in its infancy. 

But his report also said: “Nonetheless, the market should continue to be monitored and if the position changes, the question of bringing employer salary advance schemes within the FCA’s remit should be re-considered.”