Wage advance firm Earnin targets employers in bid to reach more consumers

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Earnin, which provides advances on paychecks directly to consumers, is expanding to offer its services through employers.

It is a pivot for the Palo Alto, Calif., company, which came under investigation by the New York State Department of Financial Services in April following reports of users who had payday-loan-like problems with the service. In August, the department announced a broader investigation into the payroll advance industry and allegations of unlawful online lending. Eleven other states, including Connecticut, New Jersey and the Dakotas, have joined this effort.

Department officials did not respond to an email seeking information on the status of the investigation.

Early wage access providers like PayActiv, DailyPay, FlexWage and ZayZoon give consumers access to their paychecks before they are deposited in their accounts. Such companies typically have agreements with employers and receive payroll and attendance data on which to base credit decisions; the loans tend to carry a small fee.

Until now, Earnin has not forged relationships with employers but has made short-term loans to consumers based on their bank account data. It is one of a number of fintechs enabled by aggregators like Plaid that obtain bank account information and share it with third parties.

On Wednesday, Earnin will announce that it has begun working directly with employers. It still will not receive payroll, time and attendance data from the companies. It estimates this information based on borrowers' geolocation data (to find out how many hours they spend at work) and bank account data (to find out the size of their paychecks). Employees can also upload photos of their time cards. Earnin can integrate with time sheet systems as well.

The company generally does not require employers to do any integration work.

“The biggest barrier to entry for employers is really integration,” said Ratesh Dhir, head of B2B at Earnin. “Typically you will need to integrate with time, attendance and payroll systems, which can take months.”

Earnin says the way it does business resembles other early wage access companies.

“There's a lot of research at this point that 75% of American workers live paycheck to paycheck,” Dhir said. “About half of them find it difficult to make household expenses, and this directly impacts your productivity at work. The average employee spends two to five hours a week dealing with their personal finances at work.”

Early wage access could help these employees have a healthier financial life, the theory goes.

Earnin says it is different from other early wage access providers in that it does not charge a fee but asks people to leave a tip.

“We allow employees to choose what they want to pay,” Dhir said.

The tip concept has come under a lot of scrutiny. Some customers have complained that they could not access credit without leaving a tip.

According to Dhir, users can choose to tip to cover the cost of their transaction, or the cost of somebody else's transaction. About 20 million times, customers have chosen to cover the cost of someone else’s loan, he said.

“We do see a fair amount of people tipping and then paying it forward,” he said.

Critics say Earnin’s tips are really loan fees that in some cases are extremely high fee.

Dhir said that these are nonrecourse financial products — the company does not try to recover money from people who fail to repay their debts.

He also notes that it is offering people access to wages they have already earned.

“It's not something that's theoretical,” he said.

Deanna Keppel, director of franchise support services at Assisting Hands Home Care, a Nampa, Idaho, company that sends caregivers to customers’ homes, saw a commercial for Earnin several months ago. She thought early wage access might help her company with employee recruitment and retention.

“A lot of our caregivers often can't make it to one of their shifts,” Keppel said. “Their car breaks down and they don't have the funds to get it fixed right away, or some other setback keeps them from getting to work. We've been trying to find something that would help them out but then also keep them working, because if they don't work then they don't get paid, and it just continues that cycle over and over.”

The caregivers make $10 to $15 an hour based on where they are in the country. The company has 140 locations and about 11,000 full-time and part-time employees nationwide. The schedules vary; some work just on an as-needed basis.

Assisting Hands is rolling out the Earnin service and educating the caregivers about it.

The fact that Assisting Hands does not have to provide employee data to Earnin was a selling point for Keppel.

“We had taken a look at several companies that do the same thing, and Earnin was one of the only ones that didn't require an integration with payroll or our scheduling system,” she said. “Some of the other companies, it required intensive labor on the part of our office staff to give them reports. So Earnin was by far the easiest companies to implement.”

She vetted Earnin’s tipping system before she signed on.

“That was the one question we kept getting: This sounds too good to be true — how do they make money?” Keppel said. Earnin representatives told her that because it was community-based, a lot of people surprisingly will give tips and that the model worked.

Ideally, offering advances will help Assisting Hands bring in new talent it cannot get now.

“We're competing with the Ubers and the Amazons and the Starbucks, and collectively they can provide a lot more benefits,” Keppel said.

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