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Welcome back to the occasional series on the podcast called Fintech Revealed. This is a sponsored show where we take a deep dive on one topic with a couple of industry experts.
Today, we have Nico Simko, CEO and Co-Founder of Clair and Dan Loomis, the General Manager and Head of Product for the Money Group at Gusto. The topic we are doing a deep dive in is Earned Wage Access (EWA) – one of my favorite fintech innovations of the last decade. We cover a great deal of territory on this show as we delve into embedded finance and the evolution of EWA (for reference I interviewed Nico on the show last year).
This episode was recorded in person at a podcast studio in Southern California and the video is available for viewing below.
In this podcast you will learn:
- Why Clair focuses on being embedded with HR and payroll companies instead of going direct to consumer or direct to employers.
- What piqued the interest of Gusto to offer EWA.
- What was involved in getting Clair up and running at Gusto.
- The two pieces that had to be in place at Clair to be able to embed their tech at Gusto.
- What employees are using EWA for at Gusto.
- How EWA is presented to employees in the Gusto app.
- How Clair worked with Gusto to determine how exactly to integrate EWA into their wallet.
- How the roll out has been going.
- What Gusto users are telling them about EWA.
- How fast a user can get money to their card if they have never used EWA before.
- Why Clair took the regulatory approach of treating EWA as a loan.
- What resistance, if any, employers have to offering EWA.
- What is stopping more payroll companies from signing up for EWA.
- Some of the limitations of the direct to consumer EWA model.
- What it is going to take for EWA to become ubiquitous.
Read a transcription of our conversation below.
FINTECH REVEALED PODCAST NO. 2 – EARNED WAGE ACCESS
Peter Renton: Before we get started, just a quick note for our regular listeners. This episode of Fintech Revealed was recorded in person at a podcast studio in Southern California. Thanks so much to the folks at Clair for making this episode possible.
Hi everybody and welcome to Fintech Revealed, our occasional series on the Fintech One-on-One Podcast where we focus on one topic and do a deep dive. And today we are doing a deep dive on Earned Wage Access. My name is Peter Renton. I am the CEO and founder of Renton and Co. And joining me here today, I have Dan Loomis with Gusto and Nico Simko with Clair.
Before we get started guys, let’s do a quick introduction. Dan, just tell us a little bit about yourself and what you do.
Dan Loomis: Yeah, I’m Dan Loomis. I’m the General Manager and Head of Product for what we call the Money Group at Gusto. It’s focused on delivering great capabilities to two sets of customers: consumer financial services and employer financial services. And just a quick touch on Gusto. We’re a small business platform. We deliver payroll, HR, and benefits capabilities to the hardest-working Americans and help their teams thrive.
PR: Okay, Nico?
Nico Simko: Thank you so much for having us Peter. I’m Nico Simko, one of the founders and the CEO of Clair. At Clair we basically believe that if you’ve worked today, you should have access to portions of your funds today. And the way we do it is we power companies like Gusto, payroll companies, to offer that directly through their employee apps. A little bit about that strategy and why we chose it. Many, many years ago, payroll and workforce management was a commodity play. Employees would clock in and clock out of a physical time clock if there was even that at work, if not punch cards, if not post-its. And payroll was something that somebody they would never meet would run in a separate office, not even on-site, especially for small businesses. And that has very much changed. Companies like Gusto have become very modern, very loved by both employers and employees. So employees are inside an app every single day. And so we believe that financial service is connected to the workplace, which starts with if you work today, get your money today, should be embedded within payroll. And so that’s what we do at Clair. And I’m very excited for this conversation today.
PR: Okay, so let’s kick it off and I want to talk about your go-to-market strategy at Clair first because you have a different strategy from many others in the space. You, as I said, you’re going after payroll companies, HR companies, that sort of thing. Why do that rather than go direct to consumer, for example?
NK: Yeah, so typically in the Earned Wage Access space there’s, you know, remove Clair for a second, there’s two types of wage advance companies. The first type will go direct to consumer. What they’ll do is they’ll probably be available, you know, found on Instagram or other social media platforms, and then they will allow employees to download a new app. Typically, they’ll use a financial services connectivity platform called Plaid in order to read kind of the financial health of an employee, and then based on that data, they would advance funds. That works. Those companies have scaled enormously and have solved an issue, which is the rapid need for cash. However, they don’t have a very important piece of data, which is, has an employee worked or not? And can you connect to the workplace in order to make sure that that money is paid back? And so typically, those apps are a little bit more expensive for the employees and expensive can come in two ways. One is monetarily more expensive, meaning the fees are higher, or it’s expensive in terms of kind of product requirements in order to sign up. Things like you have to be with us for multiple months, you have to have a direct deposit. And so there is still a limitation of millions and millions of employees who don’t qualify or think it’s too expensive who would like something that’s a little bit more affordable. Then you have the other type, and I know I’m going a little deep here, but you have the other type which kind of has gone, has exploded I think over the past six, seven years, which is a direct-to-employer model. The direct-to-employer model is a lot more affordable; it’s a true benefit. Typically, these providers will charge less than $5, and almost every single consumer feels like it’s completely fine to get money instantly. And the reason why they can do that and still run a good business is because there is direct connectivity to the employer for both repayment and data. However, there’s a fundamental kind of limitation of that model, which is that you need to go and talk to the employers one by one. And you need to convince HR, and if you look at the data, about 83 % of all employees work for businesses with less than 250 employees. If you’ve ever talked to a business owner who manages a small to medium-sized business, they have a lot of things to do, and they don’t have the benefit of having large benefits teams and HR teams. And so they kind of rely a lot more on high-tech payroll and workforce systems that they buy when they start as a business or when they grow into a certain size. And so that’s why Clair chose a strategy of being embedded with those payroll and workforce management systems being a lot more modern with most employers saying, “Look, I don’t have time to choose and handpick all of these benefits. I’m gonna take whatever is in my payroll or workforce management system, and I’m gonna trust them because I trust them already to run payroll”. That is why we believe in it. And not every payroll can do it, but that’s why we believe in that strategy.
PR: Gotcha, gotcha. Okay, so Dan, you live in the world of small business. What was the impetus, at Gusto, to embrace Earned Wage Access? What sort of piqued your interest? Was this driven by your end clients? What was the story?
DL: What we try and deliver at Gusto is complete empathy for our customers. And we serve many, but broadly speaking, we have hundreds of thousands of small businesses. And like Nico said, these small business owners, they wear tons of hats. And they hire Gusto to help solve a lot of pain for them, including a comprehensive, fair, and affordable set of benefits that they can offer to their workers. We empathize with the small business owners. We also empathize with the end worker or the consumer in this whole experience. How do we deliver them fair and affordable access to financial products that are deeply connected with their workday? To zoom out for just a second, what we help deliver to the employees of small businesses, we call them members. What we deliver to members is kind of two big chunks of capability. The first is the connective tissue back to their workday so they can be productive and engaged and not really think about the nitty-gritty of showing up at work and dealing with work stuff, but they could do their job. We help clock in, clock out. What’s my manager’s phone number? Help me get small group health insurance. What’s my pay stub? What am I about to earn? These types of things that we can expose to a consumer to help them understand their relationship with their work. The other side of this critically is the deep interaction with consumer financial services. How do I bank? How do I accelerate wages faster? How do I get paid earlier? How do I help save $50 a month for six months for my trip to Hawaii? And in the relationship with Clair, how do I accelerate funds that would typically arrive next Friday to today, because my tire is flat today, and I have urgency right now. So this is the use case that we’re trying to solve for. And we understand who we need to partner with by deep empathy with both of these large customers. It led us to Clair. One of the motivators for partnering with them is, I bet on teams. Who’s a great team that you can get in the trenches with and solve real problems quickly? Check. Nico and his team have been absolutely terrific. The second part why we chose Clair is a deep understanding of compliance in this space. When you deploy these types of capabilities to consumers, you really need to do so in a thoughtful manner. Check all the boxes at the state and federal levels. Partner with the right financial institutions to ensure that this is done correctly. Package it up in an experience that consumers love and trust. And that’s what we found in Clair. So, empathy, the right partner, and the right product experience, were a few motivators for choosing Clair.
PR: Okay, so then what’s involved in getting someone like Clair up and running? It’s not a trivial process.
DL: First of all, we had to meet with the team, and understand their product deeply, make sure that they were able to integrate into a really beautiful experience that we offer to millions of employees. And then just do the hard work, right? What is the user experience? How are we clear in what we’re offering? How do we integrate that deeply into the existing product set that we offer? And work in the trenches. A few months of development effort but at the end of the day we’re deployed and we’re scaling rapidly and we’ve been able to bob and weave with Clair along the way.
PR: And from your perspective, Nico, what did you have to do to get ready to be able to partner with a company like Gusto?
NS: Yeah, I divided it into two pieces. The first piece is what we had Clair to have in order to be even a potential candidate to work with Gusto. And then there’s the second one, once we had it, is how do we make sure that, you know, this is not a transactional relationship, but it’s a partnership. Because we know financial services and fintech very well, but we’re not in Gusto every single day, so there’s a lot of discovery that we’re gonna have to do in order to make sure that, you know, our product resonates. So, in the first part, we had to build to find a national bank to partner with; we had to, from a compliance standpoint, like make sure that they would be the true lender. We had to then go state by state and figure out which licenses we needed. We had to then build against the bank both for money movement and lending, and then we had to get through multiple forms of audits in order for this program to be to the level of scale that Gusto requires. Once, I think, we tested that, and, you know, thousands and thousands of businesses were using it. I think at the time when, you know, Gusto was looking at it, this is, I think, when we felt it was the right time to, you know, to go to Dan and build a relationship and figure out whether this was the right time for them to build this. Once it was the right time, then the reality is, I think what we do at Clair is, we lead with two things. Ultimately, what is the experience you’re trying to get out of it, for both employees and employers? And based on that, how do we reverse engineer our infrastructure into the experience that we want to build? And the reason why we always start with what is ultimately the user experience you want is because every single payroll or workforce management app is a little bit different. It’s grown in a different way. Gusto started as a payroll company. Not every payroll company started as a payroll company. Some payroll companies started out with workforce management systems. And so it’s very important for us to figure out what is the end goal, what’s the company’s DNA and what they’re trying to head to. And then I think the last piece is we believe that these products, although they’re deeply financial and there is a lot of complexity behind, they’re gonna be built by people. And so what I tell the team and what we put a big emphasis on is investing in the people and the relationship. We’re gonna learn a lot from our partners. I tell that to the team all the time. But we also have to share as much as possible about our knowledge and help our knowledge grow with our partners’ understanding. What basically that means is that we don’t see our product as a finished product. We always see it as like, what can we learn, literally this week, about what employees, employers have said, of what our partners have said in terms of how it is to work with us. And over time, we try to build deeper and deeper relationships so that five, 10 years into a partnership, we can grow more and launch new features.
PR: Right, right. So as anyone who’s listened to this podcast for any length of time will know I’m a huge fan of Earned Wage Access. I think it is probably the number one fintech innovation of the last decade. And I am really bullish on it because it makes a difference in people’s lives. And so maybe, Dan, you can tell us what are the use cases? What are people using Earned Wage Access for at Gusto right now?
DL: It’s profoundly important for our consumer base that uses financial services with us. There was a father who was actually short on cash and literally needed to fill up gas in his vehicle. And he had this capability, toggled on. He knew it was available for him. And when he realized that he was actually short on money, he went in, instantly received cash in his account, and was able to fill his car up. This is a real-world use case. And it talks about a kind of urgency around essentials and necessities. We provide that security blanket, that comfort, with an always-on backup. If you’re short on cash and you need to just get a little bit more, that’s available. Another use case, there was another father who took his family on a cruise, and he wanted to do a little something extra special for his family. He tapped into his app, he saw his available balance, saw that he had a little bit more that he could borrow from his next paycheck, and took that out to treat his children on a family vacation. So you have these bounds of cashflow urgency for essentials and being able to flex forward a little bit of your pay, a little bit earlier, really helps. The other bound of this is, how do I add a little bit of joy, a little bit of delight in these kinds of highlight moments in life? And we see a broad spectrum in between that.
PR: Right, right. And that’s the thing with Earned Wage Access, you know, you, as every employee in the country, as soon as they start work, are lending money to their employer that they have not received. So that’s one of the reasons why I love it so much because I feel like it’s your asset, as the employee. So maybe we could talk about, and I’d like to hear both of your perspectives here, like, what is the user experience? Maybe, Dan, we can start with you. How is it presented to employees as they open up the app and check their balance?
DL: Yeah. First of all, we want our millions of members that we work with on behalf of our small businesses to deeply engage with Gusto because we add a lot of transparency and clarity around their relationship with their employer. We also expose a lot of capabilities that are cost-advantageous for them. We help them solve for urgency of funding because we are the payroll company. We have some mechanics that we can use to get people paid early. And one of the methods that we bring this to life through is what we call our Gusto Cash Accounts. Consumers, or members, can download the app. We get them set up with their work relationship. Help us understand who you are. Talk to us about your withholdings. How would you like to get paid? And we allow members to send payment to any financial institution, but if they happen to choose Gusto, we have a lot of capabilities that are beneficial to those members. We help accelerate their paycheck. We help them earn great interest on savings. We help them with novel savings capabilities. We also have, like we’ve been talking about, this Earned Wage Access set of capabilities. And a user would choose to route their direct deposit into this financial services suite of products, quick onboarding, and then they’re in. We want to help steer a little bit of direct deposit into this cash account. And with that, we enable a lot of capabilities like Clair. It’s deeply integrated within the flow. If a user happens to click on an area that would take them to talk about Clair, very clear on what Clair is, what they do, how it works. And there’s a couple of mechanics here. One is, if you’re okay with a few days between requesting and receiving funds, it’s absolutely free to an employee. If you need funds more quickly, within, say, 30 seconds, there’s a fair and affordable fee for access to those funds instantly. And we deliver those funds into the user’s cash account, and they immediately have access to them. It’s deeply integrated, but what we try and do is provide a contiguous user experience, but also be very clear of, you’re in Gusto or you’re in Clair. So, part of the same story, different company, different use case, embedded fintech is a real thing, and we power parts of our company through embedded fintech players, and Clair is one of them, but we try and expose them as cleanly as we can in a user experience.
PR: And so what about from the Clair perspective? I mean, how do you kind of make that happen from a user experience perspective?
NS: I think just to give one shout-out to Dan, I think one thing that I’ve really learned to love specifically with Gusto and the strategy that he’s leading is he’s seeing one specific component, which is, hey, I’m at the gas station I need money, and it’s like that’s only one part of the story. At Gusto, they’ve put the Clair experience within holistically in something they call the Gusto Wallet, right? Which is a card people can learn how to save, you know, going back to that example that Dan was giving around the cruise, like I think what I’m impressed with Gusto is that they’re going to try and help that person save up front for the cruise, but in case on the cruise, you know, for those extra dollars that they want to spend, but in case that they need it and they weren’t able to, then Clair can be the last resort. And I think that for us is extremely motivating for the team because we really believe that, you know, financial wellness is not a one-stop shop where it’s like, you know, you need kind of $200 right now because you’re at the gas station, it happens day in, day out. And Gusto has spent a lot of time and money with very smart people building that holistic kind of long-term financial suite of solutions. And so that makes us at Clair very excited, because we can see where our future lives. But going back to your question, the way we make this work is we try to make sure that the entry points are in the right place. Again, every single application is different. The way the Gusto members app, i.e., the consumer employee app has been built, it’s been built really holistically to be that connective tissue between what the employer needs and what the employee needs. And so, where you position, actually, Earned Wage Access, to be there at the time when employees need it, it’s not that simple. You have to do a lot of research, and you’re going to try to put them in different places. You’re to see what people click. And then sometimes you launch it in a certain area where you expect, well, everybody’s going to discover it, and then you realize, boom, actually, and we’ve seen this sometimes with Dan, like we launch an entry point, or you know we do a certain release and then actually you know what? We didn’t get as many people to sign up. And then we review it and realize, maybe the entry point was not right, or maybe the actual flow when you get into that entry point was not what people expected. And so that’s why, again, at Clair, we don’t see this as an almost transactional relationship, where it’s like it’s a one-size fits all. We will work with you over and over to figure what works, what’s your long-term goal, how do we fit that within your strategy? And that’s how we a little bit differentiate ourselves from others. Typical Earned Wage Access companies will see payroll companies as a marketplace. They’ll be like, great, thank you for the data. I’m gonna go and try to sell to your employers. We have a completely different view where, you know, Dan and his incredible team, are customers, primarily. And we treat them as more than customers, like partners. So we will also tell them sometimes if, you know, we disagree, and we will push their thinking. Ao, yeah, that’s how we interact.
PR: Okay, so it’s been almost a year, I believe, since you started rolling this out. What can you share as far as usage? I mean, has this met expectations? Where are you at?
DL: Yeah, great question. When you deploy a new capability, you want to make sure that it’s very thoughtfully expressed. Product management, 101. Let’s deploy a capability. Let’s test its conversion. Let’s see how people understand it. Let’s see how they convert through the bottom, middle funnel. Let’s make sure that at the bottom of funnel payoff, things are working really well for the consumer and the business. And this is any test and learn process, right? So we deployed, it feels like forever ago, but we’ve gone through a very thoughtful release across our customer base to make sure that we’re delivering the right value, that it’s really well understood. This is also, at the end of the day, there are hard dollars being lent out, and the goal is to get that repaid. And we want to make sure that that exchange of value is where we need it to be, and we thoughtfully deploy and scale this offering. Today, we’re very broadly exposed to our customer base, and we’re still scaling up. Thankfully, Gusto has hundreds of thousands of small businesses. We represent a meaningful part of the US economy, which we’re super proud of. That also brings millions of employees to our platform. And we just want to make sure that we thread the needle correctly with this product offering. Within the next few months here, we’ll be scaling to our entire user base to have access to this capability. We’re pretty meaningfully penetrated against that user base right now.
PR: Right. And so, what is the feedback that you’re getting from users? I mean, I imagine this doesn’t operate in a vacuum, right? You are seeing how they’re actually using it, and they’re also telling you what they want, right? What are some of the things you’re hearing?
DL: Yeah, from a quantitative standpoint, we take CSAT and NPS very seriously. For those familiar with Net Promoter Score, an 85 is a pretty strong number. So we’re super proud that what we’ve collectively created together has a very strong NPS score, which is a good indicator for customer love and value received. The other side of this is we’re a data-driven organization. Let’s actually look at how users are engaging with this and look at the mechanics of the portfolio. Is it strong? Is it where we want it to be? Yes. And the third part is the qualitative aspect. Actually picking up the phone, calling in users, seeing what we can do better for them, how the product is working for them, what are areas that we can improve on. And pretty universally across the qualitative aspects, you know, more product management, funnel evaluation, and the subjective conversations with our customers, people love this. And it’s not that it needs to be actively engaged all the time. In fact, that’s not the goal at all. But what we’re here to provide is confidence, control, and, at the end of the day, more money. We see this playing very clearly into confidence and control around consumers’ personal finances. And if we have an always-on capability that helps people when they need it the most, we see that as being the definition of success. And across these ways that we evaluate it, it’s going pretty well.
PR: Right. What about from your perspective, Nico?
NS: Yeah, I think there are a few things that we track; they’re very similar and almost perfectly equal to the ones that Gusto tracks. One is NPS, is fundamentally what we’re building, like our consumers saying that if we were to take it away, they would be really, really unhappy. And the answer fundamentally is, yes. People are saying like, look, I don’t want you to take this away from me. A few data points to support that: The number one customer support ticket we get is, I am leaving my job. The typical hourly worker will spend six to seven months in one place, “I’m leaving my job, how do I keep the Gusto wallet?” you know, Earned Wage Access solution or on-demand pay, you know, everybody puts a different name to it. But that’s the number one thing we get. So that kind of proves that people are saying, look, “I’m going somewhere else, how do I keep it?” The second thing is, going back to the gas station example that Dan was talking about; we built that product with that use case in mind: you’re at the gas station, there’s a car behind you, so you’re under pressure, you put your card down. Now, gas stations, for those who don’t know, most people don’t know, they put card holds up to $150 to put $20 of gas, right? The average American doesn’t put $150 at the time, they’ll put $20, $30, $40, but they’ll block $150. So, you’re at the gas station, your card declines, you can’t get home. How fast can we get people to get the money, assuming they’ve never signed up for the feature? And what I think we’ve been able to accomplish here is basically within 70 seconds, you can go from you’ve never ever seen something like this, to your money is on your card, and you can swipe it again in 70 seconds. And that’s the average person’s time in order to get funds. And so that time to value is something that we value a lot, and returning users will take about 30 to 35 seconds in order to do the same transaction. And so again, those little emotional moments, yes, we build very transactional kind of money movement tools, but it’s actually an emotional consequence. We want the person not to feel ashamed. We want the person to feel financially free. Many of us who have access to good credit cards feel financially free because we’re not going to doubt whether this card is going to decline or not. We just swipe it. We know it’s going to work. And so that level of financial freedom is what we want to give people because they worked, not because their credit score says something, because you’ve completed your hours, you have the right to feel financially free. What Dan is working on, what we’re working on together, holistically, offers that feeling to people. And we don’t need to sell directly to employers, we don’t need to bother them with this. Going to consumers directly, in my opinion, also doesn’t work perfectly because you don’t have enough data. And so the right future here is Dan and his team building those and us helping power him and enabling him to focus on that and we’ll provide the infrastructure.
PR: So, Nico, when we chatted last year, and I’ll link to that episode in the show notes, what was really clear to me was the different approach that Clair has taken in a regulatory way than other platforms. You decided that this was going to be a loan. Many, many companies in the Earned Wage Access space really fight that. So tell us why you went that way, because it wasn’t the easy way, it was actually the more difficult way to set things up.
NS: Oh yeah, it cost over 20 million dollars for the lending program. So yes, it is more expensive. It will take you three years, if not more. You know, simply put, if you’re advancing money to people with the expectation that you will get paid back. And again, every single advance at Clair defaults to zero cost. It’s defaulted to an ACH. It’s defaulted to them being zero. So it always defaults to zero. But if certain consumers say, no, no, I needed instant, I’m at the gas station, like, you know, I just want that instant delivery. Then now, there’s a fee associated with it. We felt that at least some states would come out and say, look, you’re advancing money to people. You’re expecting to get a paid back. Sometimes there’s a fee. Guys, this is a lending program, you know? And so because fundamentally, I saw, and this was very much a personal decision, I saw that there was a heightened risk that states would see it that way, although almost every single provider, if not every provider in the market, was trying to fight that and stay in a regulatory area. I felt that the long-term moat would be like, you know what? I’m building this company from scratch. We had very long conversations with our investors. Our investors asked us to build a long-term business and build it the way that would allow us one day to potentially go public, but create outsized return for them. And the way to do it was just to invest more. So that’s the way, that’s the reason why we did it. And now, when certain states are coming out and debating whether this is a loan or not, or, I think the CFPB last year came out and said, look, we’re going to repeal what happened in 2020, which basically gives Safe Haven to certain programs. And we’re going to just call out that every single wage advance solution, all of them, there are certain exceptions, but all of them are lending programs. We’re good; we’re good to go. We’ve built that. So what it does, it gives me comfort, but it also gives our partners comfort. Whenever a state comes out and says, “We believe this is lending,” we say, “OK, great, yeah, we have our lending license.” And if a state comes out and says, “Well, look, actually, we think there’s a specific license you can apply for,” that’s no problem. We can apply for it. That’s going to be even less complicated for us than everything else we already went through. And we have teams that deal with licensing. That is a moat, you know, to some extent, and that’s something that also is embedded into every single thing we do. And we hope that just helps our partners have more peace of mind.
PR: Right, right. So, Dan, onto sort of the rollout that you talked about earlier. I’m curious about how it’s rolled out and whether there’s ever resistance. I presume you’re rolling this out via employers, right? You’re not going directly to the employee, or maybe you are. But what I’m interested in is, has there been resistance to offering this with anybody?
DL: You know, when you deploy any feature, function, capability, there’s always some feedback. To specifically call it out, we get negative feedback. This is a rounding error of feedback, though. This is universally seen as a positive benefit that Gusto helps deploy to employers so that they can offer great benefits to their employees. And how we take these to market is, Gusto provides a great set of capabilities, and when employers choose Gusto and they hire employees, we give employers choice over what they offer to their employees so they can opt all their employees out of these capabilities if they want. That’s very clear and obvious in the user flow for sign-up and engagement with the employer side. But the vast majority enable these benefits for their employees because it helps them.
PR: Right. Why would you opt out of something that would help your employees?
DL: It’s, you know, folks have various reasons, but this is a very, very small group of people that choose to opt out because, at the end of the day, we’re helping their employees get paid faster. We’re helping them save better. We’re helping them earn more interest on their money than most providers. We’re giving them the flexibility and confidence, a security blanket. If they need some wages from tomorrow or next week, they can help pull that forward with what we call on-demand pay, the exposure of Clair’s capability within our product. And the vast majority of employers, I’m talking a very high percentage of them, enable these capabilities for their employees.
PR: Right, right. So what, from your perspective, Nico, is stopping more payroll companies signing up for Earned Wage Access? Because it’s still not prevalent everywhere.
NS: Transparently, I’ll go back to the same theme as always: it’s the team. I don’t want to underestimate the work that Dan and his team have done. They have built an entire digital banking experience combined with consumer on-demand pay, holistically within a payroll app. You go to a company like Chime that just rolled out recently, kind of more longer-term lending, they have probably a thousand more employees than the team that Dan can have. You need very high talent, high concentration of talent. You need a very, very good team. You need dedication from the top that this is something that matters. I’ve been lucky to meet one of the Gusto founders, and this is something that they’ve had at the back of their minds for a while, is financial services for consumers. And finally, it’s also that you care about the mission. I would love for every payroll company to fundamentally care about the financial life that their customers, i.e., the employees have, but not everybody really cares about it or cares to build it. I think that Gusto has shown to be a leader in that space. They’ve been a leader way before we even partnered. And I think that they’ve been able to also test a lot of different things, see what works, focus on those that are picking up, maybe remove those that don’t. And so fundamentally, the answer is one thing, it’s the team. It’s that Gusto has a team that can do it.
PR: I want to go back to something that you said earlier. You said something about the direct-to-consumer model of Earned Wage Access. They don’t have the data. I mean, maybe you could expand on that because I’m curious about why the direct-to-consumer model is not the model that’s not winning?
NS: Yes, yes, yes. Just to be clear, it is a pretty good business. There are many providers out there.
PR: And there are millions of consumers.
NS: And there are millions of consumers using it. But if you do talk to consumers, they’ll complain about two things, well, actually, fundamentally, one theme, which is called eligibility. Eligibility for the advance amount that they’re looking for. The typical user will want anywhere between $150 to $350, but to enable that level of capital access, the direct-to-consumer providers will need to know a lot about certain consumers. And so they’ll disqualify a lot of consumers, or they will go into fees that get to a level that, you know, get into legal battles or they have ways to charge that I’m not very pro of, hidden fees, I think one of the things that we’ve always said is that we will speak very directly always with any sort of fee that exists, we’ll always make it de minimis, that it’s very, very small, but to do that, you need deep connections. I’ll maybe double down on that to explain what I mean. There’s an enormous amount of people who need short-term cash in this country. Most Americans cannot cover a $400 bill. Short-term liquidity needs are a massive, massive issue. And the gas station problem we’re having happens every single day. It’s probably happening right now, close to where we are because it happens all the time. The reality is, what Gusto was able to do was say, “Well, I know that Jimmy, who’s at the gas station, he just worked five hours.” But if you’re a direct-to-consumer solution, you have seen that Jimmy has earned paychecks in the past, but you don’t know that he just worked five hours. You’re going to guess that he worked five hours. But turnover in these sorts of jobs is about six to seven months. So, one in seven chances that he’s actually not going to get a paycheck. He’s in between one of those months where he’s not going to get paid. So volatility risk is super, super high. And so what Gusto is able to do is say, one, I know that this person worked. And two, I can insert myself a little bit in the payroll flow to make sure that the consumer authorizes a repayment mechanism that reduces any risk of the provider not getting repaid. If the provider doesn’t get repaid, they have to charge everybody for that. They have to start increasing fees. They have to reduce eligibility. And so that is why I think that the future will be much more deeply embedded within payroll, and much less kind of, I would say, higher fee or lower eligibility solution direct to consumer.
PR: But so from your perspective, just to be 100 % clear, the money is coming out of the next payroll, right? So, the only way that you don’t get paid is if either the payroll provider goes bankrupt or the small business goes bankrupt.
NS: Correct, or they just don’t run payroll, or something like that happens. So, as you can imagine, that’s a much different risk than saying, I hope that Jimmy worked a few hours. Those are vastly different risk levels. And who wins out of this? The consumer. Because the consumer suddenly has high eligibility faster, 70 seconds, instead of sometimes months, in order to get access to it. And they also get way lower fees for anything that’s related. We default to free. That’s how cheap it gets. We default to free. Most providers cannot afford that.
PR: Right, gotcha. Okay, so in closing, I want to kind of, I want to hear from both of you about what it’s going to take, because what I would like to see is a future where every single salary W2 worker who’s in a payroll system has access to their pay whenever they want. What’s it going to take for us to get there? Dan, I’ll start with you.
DL: It takes a lot of passion and a really sincere vision. I think that Gusto, we’re a 12, 13-year-old company, we’re still founder-led. And Josh, Eddie and Tomer have complete conviction that we’re here to be a multi-generational company that solves real problems for small businesses and their employees. You can’t waiver from that. And when you begin to peel it apart, what is most beneficial and advantageous for small businesses to keep them thriving longer, and how do they employ a great workforce that’s retained because they love that relationship. You keep peeling this onion apart, and eventually, you get to, how do we move money expeditiously, that is advantageous for both an employer and an employee? One great start to chiseling away at this is by integrating providers like Clair that help enable us to deliver on-demand pay. We provide that cash flow urgency solution for millions of employees. And our goal over the next several years is to continue to invest into this small business platform, to continue to solve these problems for employers and employees, to make moving of money easier, faster, cost-reduced, less risky, and at the end of the day in service of keeping businesses in business longer.
PR: Okay Nico, you can have the last word. What’s it going to take for everybody to have access to this?
NS: I think we’re seeing an acceleration over, I would say, the past three, four years. It started where people who were looking at the space felt like employers should just pay their employees every single day. That’s a little bit ludicrous because a small business, probably if you take a restaurant, they accept credit cards, it takes two, three days for them to even get money for the sales that they met. How are they gonna find the cash to advance their employees? There are ways to do it, and I think if anybody will figure that out, I think it’s probably gonna be Gusto in this space. But I think once you jump kind of that rope, then the last solution is, well, let’s digest payroll data. Let’s find the right regulatory framework. Let’s embed within payroll systems. That’s what Clair does. And then what it’s gonna take is amazing teams being built out there, and I think Gusto will have always the benefit of being the first mover, will be steps ahead. Where I think their head is at is like, what else do we do next? What can we build on top of this that now helps both employers and employees? So the sooner I think, whether it’s a payroll or workforce management system that wants to invest in this, the faster they’re going to get to market, the faster they’re going to be able to differentiate, create new business lines, create new revenue lines, and be able to be accessible. So I think what it’s going to take? It’s always the same theme. It’s the team. It’s like, who can build amazing teams, and if you can, then you can be ahead of others.
PR: Okay, well, we’ll have to leave it there. Nico, Dan, thank you so much. What a fascinating conversation. I appreciate you coming on the show today.
NS: Of course. Thank you, Peter.
DL: Thanks, Peter.