Can Payday Loans Become Obsolete? With $ 15 million more, Clair wants to find out
The world seems to be moving faster every year, and yet nothing feels slower than the speed at which paychecks are distributed. In the United States, the day following a pay period, work takes two weeks to complete, with a check or direct deposit a week or two later. For the tens of millions of employees who live from paycheck to paycheck, that several weeks delay can mean the difference between making a rental check – or not.
A variety of startups have approached this problem with different solutions, and one of the newest and most compelling offerings is Clair.
With its own capital base in New York City Clair offers employees immediate – and above all – free wage payments through integration into existing HR technology platforms. It works with full-time employees as well as gig workers and has a range of online and mobile apps for workers to understand their finances and get a deserved wage advance.
The company was founded at the end of 2019 by CEO Nico Simko, COO Alex Kostecki and CPO Erich Nussbaumer directors. Just months ago, Clair announced a $ 4.5 million seed round led by Upfront Ventures, bringing total funding to $ 19.5 million.
“Advance payment” or “advance wage earned” (there is a slight difference) was Silicon Valley’s euphemism for payday loans, an industry plagued by fraud, fraud, and predatory greed that have ripped workers out of their hardship-earned paychecks through Usury.
What sets Clair apart is that the offer is free for employees. Since it connects directly to HR systems, the startup takes significantly fewer financial risks than traditional payday lenders, who don’t have access to the salary data that Clair can analyze.
For Simko, one of his goals is simply the complete abolition of traditional industry. “I have a payday lender right outside my Brooklyn apartment and there’s a long line on the 25th of every month and I’m not going to stop until that line goes away,” he said. “For us, success consists in becoming the winner in access to earned wages.”
He is Argentinian and Swiss and came to the USA to visit Harvard, where he met Nussbaumer. Finally, he worked at JP Morgan with a focus on the payments market. He kept in touch with Kostecki, their families are good friends, and the trio decided to tackle this issue, inspired in part by Uber’s instant pay feature launched in 2016 and which turned out to be very successful.
Clair founders Alex Kostecki, Nico Simko, Erich Nussbaumer. Photo credits: Clair
Instead of earning money with interest, fees or tips, Clair wants to be the bank and financial service provider of choice for employees. As I noticed about Pinwheel last week, a payroll API platform that has a direct deposit relationship with an employee, virtually guarantees that they will process the vast majority of their financial transactions through that particular bank account.
Clair offers free instant payment advances as access to its other offerings, which include spending and savings accounts, a debit card, an in-app virtual debit card, and financial planning tools. Simko said, “Our business model is to give people free access to earned wages and then automatically enroll them in a digital bank.
In fact, he and the company believe in this model so much that it pays off as an incentive to integrate human capital technology platforms like workforce management and payroll systems. It provides a recurring source of income for HR tools based on the number of users joining Clair, regardless of how much those employees use the software. We are “really going down the thesis of embedded fintech,” said Simko. “Employees spend money on their Clair card, and we distribute it to our back [HR tech] Partner.”
Clair joins a number of other companies in this space, which is getting hotter as the investor-perceived opportunities in financial services remain large. Last year, payroll platform Gusto announced that it was Expansion from pure payroll accounting to a financial wellness platform expandbased in part on his instant earned wage advances, or what it calls cashout. We have Even. covered, which is one of the originals in the field with a large partnership with Walmart, as well as neobank Dave, which offers prepaid features with a tip-earning model. Dave only announced VPC Impact Acquisition Holdings III, a $ 4 billion SPAC.
Nonetheless, Clair’s point of view is different, as the race for everyone around the world is intensifying with new financial services. Simko sees a gigantic opportunity in being the “Alipay” of the United States to take over the US market.
With the new funding, the company will continue to expand its product offering and explore areas such as healthcare and debt settlement. “I can’t give the APR based on your creditworthiness, but rather on your employer’s creditworthiness, which is the multibillion-dollar idea here,” Simko said. The team is nominally based in New York, with roughly half of the roughly 25-strong team.