Fintechs serving gig-economy workers raise funds, plot expansion
People who work but don’t receive a salary — Uber drivers, entrepreneurs, owners of very small businesses, freelancers — fall through the cracks of traditional financial services for obvious reasons.
They do not receive automatic paychecks that can be deposited into accounts that come with debit cards. Efforts to verify their employment sometimes fail. They have spotty cash flow, especially if the rent or another big bill comes due while a client payment is delayed.
A handful of fintechs emerged last year to meet the financial needs of this group, including Joust, Qwil, Steady and Salaryo. They have grown bit by bit, and venture capitalists are starting to pay attention to them.
The heads of two of those companies — Salaryo and Joust — in recent interviews discussed why they started them, what they are doing now and where they are headed.
Yair Levy and a few fellow entrepreneurs were sharing a coworking space when they realized they all had something in common: cash-flow challenges.
It dawned on Levy that there was a financial services market in the small-business operators and freelancers who operate in flexible workspaces and often struggle to make ends meet. He formed a startup, Salaryo, to cater to this market.
Shortly after Levy’s epiphany, WeWork, the coworking-space startup that on Tuesday delayed its initial public offering, said it was planning to create WeBank, a financial services company that would provide loans and financial advice to its customers. WeWork declined a request for an interview because it was in a quiet period.
To Levy, the WeBank announcement felt like a confirmation of the concept behind his company, which launched last year. He described it as a community bank for users of coworking services. “We think that people do need that type of proximity-community,” said Levy, who is CEO.
Salaryo offers security-deposit financing for new small businesses, entrepreneurs and freelancers. The fintech pays the lump sum in advance and charges a monthly subscription of about $10 a month. The company also offers a flexible credit line, again using a subscription model, to more well-established companies.
Salaryo built its own technology to conduct background checks, sign up new customers, compute credit scores as well as perform loan underwriting and origination. Yair says the company has hundreds of small-business customers but would not give an exact figure. Companies typically find out about it through shared workspace providers like WeWork, The Yard and Office Evolution. Interest also comes from small-business networks and freelancer networks.
Salaryo recently received $5.5 million from Ruby Ventures and Michael Ullmann's investment group, bringing its total funding to $6.3 million.
Levy said he plans to use the cash to strengthen the company’s position in its first market, New York, and to expand into the likes of Washington, Denver, Austin, Texas, and Portland, Ore.
“These are places where we are going to use this funding to [finance] small businesses and freelancers looking to take the next step in their trajectory by renting an office space,” Levy said.
The company also plans to branch out to offer more financial services to the same audience.
Joust Labs, another fintech serving freelancers, entrepreneurs and gig-economy workers that launched in public beta in January, has also been growing. Close to 2,700 small-business owners and freelancers now use it. It recently raised $2.6 million in a seed funding led by PTB Ventures. The round, which will be used to expand the neobank, was also backed by Accion Venture Lab, Financial Venture Studio and Techstars.
Joust allows freelancers and other small-business customers to get advances against their unpaid invoices. This feature, in keeping with the theme of jousting knights, is called PayArmour.
Joust CEO Lamine Zarrad noted that PTB Ventures in New York invests in early-stage companies that specialize in digital-identification work.
“I think it's incredibly validating to us to have PTB leading this round because we lead with identity and risk management,” he said.
Accion Venture Lab is a venture arm of Accion, a global nonprofit that specializes in microlending and microfinance in developing countries and impoverished neighborhoods in the United States. Its knowledge and experience in extending credit have been helpful, he said.
“At the end of the day, whether we actually lend or factor invoices, that's what we do,” Zarrad said. “And we do it for a population that's been severely underbanked.”
Joust recently participated in the Techstars incubator program in Boulder, Colo. “That was a really big experience and certainly enriching, but at the same time incredibly distracting,” Zarrad said.
Joust started with basic banking and pay advances but quickly found its customers needed faster payments settlement.
“Because we're using traditional rails, if it's a Nacha transaction, it takes sometimes up to five business days to settle,” Zarrad said.
Customers have also asked for peer-to-peer payments, to make it easier to pay suppliers and subcontractors.
So the startup has been focusing on achieving faster payment settlement times as well as establishing anti-fraud systems and making basic product improvements.