A startup is working on a novel idea to help people with variable incomes pay their bills during lean months, as banks and nonbanks seek tech-based alternatives to payday loans.
Even, based in Oakland, Calif., is building a mobile money-management service for baristas, Lyft drivers, freelancers and others whose pay can be unpredictable. Nearly a third of Americans experience income variations, with more than half of those individuals working full time, according to a 2013 report from the Federal Reserve Board.
Even's service, which is currently in pilot mode, will let users with checking accounts get advances on their future paychecks. It will also automate deposits to savings accounts on weeks when they have earned more money than they do on average. Instead of charging interest, the startup is testing a flat weekly fee.
Even is among a cadre of companies homing in on ways to overhaul the pay cycle to help people achieve consistency in their cash flow even when their hours gyrate. Some, like FlexWage, are positioning their services as an employee benefit. Others, like Activehours, are going directly to consumers and asking for tips for their service rather than a fixed fee. And Activehours already claims users who work at, of all places, JPMorgan Chase and Bank of America.
They are all betting on the growing need to revamp the payroll cycle at a time when part-time work and on-demand professions are flourishing while bill due dates do not budge.
"Work is changing and financial services need to catch up with the change," said Quinton Farmer, a cofounder of Even.
Details are scarce on Even. The startup is a work-in-progress with plans to launch later this year. But broadly, the Even experience is meant to look something like this: After linking to a checking account, the app will crunch historical data to predict a person's weekly income. If the actual amount exceeds the estimate, Even will automatically deposit the extra funds into a savings account at a partner FDIC-insured bank. Then, when cash flow is lighter, a person can take out an advance of his paycheck. The company won't say anything about the source of the credit. It does say that rather than an interest rate, the consumer will pay a $5 weekly fee, which the company describes as insurance for paychecks.
That $5 weekly fee sounds steep to Cherian Abraham, mobile commerce and payments lead at Experian Global Consulting. The starting point for startups, he said, is finding an audience to appeal to. In Even's case, he anticipates it to be consumers who, say, take out one or two payday loans annually.
Farmer said Even's pricing model could change, but the overall business model speaks to something people want: consistency.
"The idea of knowing the rate upfront will be appealing," said Sam Maule, managing consultant at Carlisle & Gallagher Consulting Group.
Maule views Even as a way to budget for the growing amount of people who have volatile incomes.
"The way people are getting paid and making a living is changing and will continue to change," said Maule. "Life doesn't work in two-week increments."
Of course, there are risks. A person could borrow too much against a future paycheck and continue to run into financial trouble. And any startup has a hard time signing up customers. Regulatory concerns could emerge as the government continues its crackdown on payday lenders.
But Even's ambitions underscore a much larger trend of data-driven rewrites of products to better suit low-to-moderate income individuals.
American Express, which once emphasized its products for the elite, has been working to broaden its audience. One of its latest initiatives seeks ways to reimagine savings for its reloadable prepaid card Serve, for example.
Neal Sample, group president of American Express enterprise growth, is conducting research with the Consumer Financial Protection Bureau's Project Catalyst. The research will test theories around what drives savings and what amount of savings is meaningful. Ideas to test could range from simple things, like offering customers savings tips, to a more incentive-based approach.
There is no "single obvious answer" to the question of how to tackle the volatility challenge and shifting workforce, Sample said.
Other new technologies can help address the household liquidity issue, according to a report by the Center for Financial Services Innovation.
"In a world where software is regularly used to analyze spending and behavior patterns, financial service providers can harness this same technology to help consumers plan, save, and access credit to build their financial health," the nonprofit said.