Why Embedded "Instant" Wage Access and Virtual Wallets Could Spark the Next Consumer Banking Revolution

Payroll and workforce management providers are embedding instant wage access and virtual wallets into their platforms to give employers the ability to provide employees with greater options as to when and how they get paid. Yet these embedded solutions suggest another emerging trend: That employees could soon also have access to more affordable consumer bank products and financial tax and health benefits through their employers' payroll and workforce management platforms, particularly as younger workers look to "unbank" themselves.


Transcription:

Holly Sraeel (00:11):

Me again, guys, you're probably tired of me by now. I am very delighted to have these gentlemen with me. I would say this about bankers and FinTech players in the industry today: If you are not paying attention to what these guys are doing, you're not paying attention. So we're here today to talk about why embedded instant wage access and virtual wallet could spark the next consumer banking revolution. On my far left is Nico Simko, Clair's Co-Founder and CEO. In the middle, DailyPay's Jack Rubin, SVP Consumer Financial Solutions. And to my immediate left, Gusto Money's, Dan Loomis, General Manager and Head of Product. Please join me in welcoming them to the stage. Before we get started, and he doesn't know I'm going to do this, I want to congratulate Nico and the Clair crew on closing $23.2 million in Series B funding in mid-May. The funding was led by Upfront Ventures with participation from Thrive Capital. Not a bad deal.

Nico Simko (01:13):

Thank you.

Holly Sraeel (01:18):

Okay, let's dig in. We all know the stats that explain the appeal of earned wage access (EWA) to consumers and employees. Most people live paycheck to paycheck. They don't have $600 in cash for a sudden emergency, and more people are paying household utilities with credit cards and rent, actually, for that matter. EWA as a product has been around for roughly a decade. Initially, the product was met with unclear regulatory classifications—is it a loan? Is it predatory?—lack of standardized regulation at the state and federal levels, and data and privacy concerns. And yet, growth has been steady with more to come on the horizon for EWA providers. What factors do you think have most contributed to the evolution of embedded wage access from where it was a decade ago, Jack?

Jack Rubin (02:12):

Yeah, so the question's about what's contributed to the growth? Well, it's a great question, and I think that what's contributed mostly to the growth is the fundamental need, right? It's the fundamental need that the end users—employees or consumers—and that clients have as well. And if you think about it from the client's perspective, they have a need, or the employer in this case, they have a need to recruit, retain, and enhance the productivity of their workforce. If you think about it from the end user or the consumer's perspective, there's never been more need than there is now, and unfortunately, a growing need for being able to afford life, right? Costs are going up, bills are regular, and payment, unfortunately, when their paycheck comes, is still stuck in an archaic and old way of doing things where you work one day and you may wait two weeks or even four weeks to get paid for that day's work.

(03:05):

And so, it's really been the growth of, and the continued growth of those needs of both employers and employees, and then advances in technology that enable a more and more seamless embedded experience that makes it more turnkey for employers to offer these benefits and these services to their employees. And I actually think there's another factor too, which is that there's more than one model that's growing the industry, right? It's a total addressable market. It is a consumer and a client base that is still underserved. And I think it's great that there's more than one model out there that's innovating and driving more adoption and more availability of on-demand pay.

Holly Sraeel (03:46):

Nico,

Nico Simko (03:49):

I mean, just taking a step back, I've tried to ask my team to think about how much EWA has penetrated the employer base in the United States. And it's very hard to get to this number because it's all private companies. There's nothing public out there. But where we're approximately landing is that we're about at 10% of businesses. And again, this is an estimate, so it's not something that we can really trace back with being perfect, but only about 10% of employers in the United States offer a form of on-demand pay. It's very concentrated towards larger corporations because leaders like Daily Pay have done a great job attracting large corporations. But what this means is that 90% of businesses don't offer a solution like that. And that's what gets us excited. The reality is, employees across practically every single industry are looking not only to get access to their wage as soon as they finish, but also have holistically better financial services.

(04:57):

It's one of the largest industries in the world, but most people are not fully happy with their banking solutions. And so the opportunity to build employer-linked financial services is massive, but for that, you need more than 10% penetration. So I think the big, big kind of growth for us, and the way we see it, is that most Americans in the private sector work for businesses with less than 250 employees. That's about 80% of people. 50% of employees work for businesses with less than 49 employees per business. So you're kind of seeing that if you want EWA to grow, you're going to have to go down market. And so that's a different strategy typically than going after mega corps. It's different product sets; it's sometimes even different infrastructure. And so that's where we see most of the opportunity.

Dan Loomis (05:50):

I'd like to add a little bit to what Jack and Nico were just saying. At Gusto, we have the privilege of serving several hundred thousand small businesses and helping improve the lives of millions of employees of these small businesses. And we see this space as providing a lot of opportunity to allow employers to create a better set of benefits that they can offer to their employees as a method to retain, attract, and really serve their employee base much better. On the employee side, we see the opportunity to provide them flexibility. They may not need access, but it's there if they need it. And that results in an extremely high NPS, that results in an extremely high CSAT—just the opportunity to have cushion, protection, safety for medical bills, for maintenance, for purchases at the grocery store. This is a great backstop that serves the employees and also a great benefit that employers offer.

Holly Sraeel (06:50):

Yeah, hold onto the thought about backstop because we're going to talk about the financial wellness journey later in the conversation. And correct me if I'm wrong, a decade ago a large focus by the EWA providers was on the B2C model, and then over time there was a growing interest in focusing on B2B2C. So the pivot, was it simply to scale more effectively, or did you see—I know Nico's going to have an answer for this—did you see an opportunity to do more than at first blush?

Nico Simko (07:25):

Completely the latter, which is, as many things in life, especially in technology, data is absolutely paramount to creating amazing experiences and product. And I think Gusto is a leader in that. They've seen it. They've homegrown so many incredible tools. I think the move towards employer connected is because you can make things cheaper because you have lower loss rates, you can make things much more intuitive. Do you really need to manually fill in your data in order to onboard to a financial product? If all of your data's already in something called I-9, which is what you do when you onboard... If you want to send money to yourself, your payroll company will know where your direct deposit goes. Do you really need to put in an ACH number? We all struggle to find it in our bank account anyways. And so I think the movement towards employer connectivity is a natural one when you're trying to find efficiency. And then finally for distribution, think about all of us, I think, get healthcare through our place of employment. You should and could probably also get financial services through a place of employment because it's a cheaper distribution. And so I think there's a lot of reasons why it went towards employer connected and payroll distributed, and I think we're only seeing the very, very, very beginning of that. A lot of products in the conversations we're having are like there's a lot more to come.

Jack Rubin (08:57):

Yeah, I strongly agree with that. And I think that last point you made about it is not only more efficient, it's more impactful to meet the employee and the person and the consumer at that moment in time. I've worked, like we all have, I've worked in other consumer FinTech, and when you're trying to make a difference in people's lives and trying to propel 'em forward financially, trying to help them start and sustain savings habits, trying to help them build their credit so that they can lower their costs and get access to a lot more of not only the financial system, but when you think about building credit, even just housing, things like that, even getting to work in some ways is impacted by that. If you think about car insurance and everything else, if you're trying to make that impact in people's lives way down after a lot of the rest of life has gotten in the way and you're left with this amount of the paycheck to make a difference for them versus starting further and closer to that moment of paycheck—being integrated in payroll and timekeeping, being real and present in their lives from the very beginning—we have a bigger opportunity to propel them forward.

Nico Simko (09:53):

Exactly. I'll add one thing on that point: the Chime's report just came out, and within it, there's something super interesting, which is they have a wage advance product within Chime, but if you look at it, they now disclose it publicly: only 25% of their monthly active users are using the wage advance solution. Although a much bigger proportion, we all know, want access to it. And so what happens is when you're employer or payroll connected, your availability can be 100% instead of 25 to 30%. And so you're also talking about removing any form of friction for consumers to have access to money they've earned but not yet received.

Dan Loomis (10:33):

This is in one part why we chose to make this capability available to our employers and our employees. We have a responsibility in the ecosystem to offer best-in-class benefits. And being part of the flow of funds from the employer to the employee, you have a lot of access to information. With that information, you can better underwrite, you can better distribute, you can better provide benefits to more people with a higher rate of approvals, with a lower rate of risk and loss rates. The data, like Nico said, is really important to provide great solutions at an affordable price point to the most amount of people you can.

Holly Sraeel (11:10):

So I want to ask you, Dan, at what point did you realize that you wanted to talk to Nico and to form a partnership? So you clearly had a commitment to do more for your employers, so how did you two connect?

Dan Loomis (11:29):

Yeah, this capability was actually the number one most desired from our employee base that we serve. We perform longitudinal studies; we have user experience research that we engage in. And the access to wages in advance of your paycheck was the number one request for multiple years running. Gusto is a 13-year-old company. We offer payroll, benefits, HR solutions. And part of this is for the employer but also for the benefit of the employee. We really look to stack capabilities that are meaningful to these millions of people. We've taken a couple stabs at this space before, but we thought it was really important to partner with a best-in-class provider that looks at offering this solution through the lens of regulatory compliance, through the lens of great user experience, through the lens of doing things properly. There's kind of evolving legislation in this space, and we wanted to partner with somebody that made this their core competency. And for this and a whole host of other reasons, that led us to partnering with Nico and his team at Clair.

Holly Sraeel (12:30):

Before we move away from you, let me ask you this as a follow-on. In the studies that you do, the surveys, do you have a sense of, because I have this argument with people in the industry all the time, do you have a sense of how quickly this is moving from an hourly wage worker to a salaried worker benefit?

Dan Loomis (12:51):

It's a benefit to all of our members. So the employees of small businesses, we call them members, we deploy this capability to everyone. The vast majority of the users of this service are hourly, but there's also a strong minority that are salary as well. So I think we're starting to see the lines blur a little bit. One individual that uses this capability through us was taking his family on a cruise, and he had just been paid, but he wanted a little bit extra to treat his family. And this person was a salary worker. It just depends on what the use case is, what the need is for the particular individual or family. But what we are really proud to say is that we offer this as a capability to everyone. And it's not that we expect people to use it, but it's there in case there's a need, in case there's a little bit of a cushion that's required. And that backstop, that protection is important for us.

Holly Sraeel (13:55):

So continuing along on the workforce management platform line of questioning. So how quickly was the uptake between EWA providers partnering with workforce management platforms and then pushing it out through employers?

Nico Simko (14:14):

I can try to take that. I think again, just taking a step back, the classic EWA via the employer model is you sell to employers. That is how there's a huge market there—mega corps, there's a lot to do there. Our strategy at Clair was like, look, we see an opportunity that's potentially more long-term. It takes a while to figure out the product; there's a lot more, I would say, backend infrastructural complexity. But what we saw was that we, and I personally, believed that payroll and workforce management systems are going to become workforce super apps. And what that means is that employees are going to spend an enormous amount of time inside of their Gusto app, and they're going to be looking at their schedule, their shift a little bit. If you look at Uber drivers, they're in their Uber app all the time:

(15:05):

"Oh, how much can I make right now per ride?" "Okay, let me go drive." I think work is you're still going to pay your employees W2, but you're going to gamify that experience, especially around new jobs. You can take part-time, and so on and so forth. And so it was natural for me to think that since Uber had this Uber Money product, that the right bet was not to try and go sell entity by entity, but actually cater for years to companies like Gusto. And the uptake takes a little longer in terms of finding the right product sets and how we want to launch it. Every payroll company is different. Every workforce management provider is different. We have workforce management providers that focus, for example, only on the restaurant industry, and so they're thinking about tips. And so how does payroll work with tips? And it's a completely different use case. Or a Gusto, which I think is the most advanced one, has their own digital bank. They have somebody like Dan who knows digital banking inside out, and they're really thinking about that as a feature component of a bigger product set. But once you have that and once you find the partner, within a few months, we can be live, and then the uptake, once you put it in front of consumers in the right place, meaning employees, I mean, they sign up immediately, the need is there. They need the money. So as soon as you make it available, people will sign up.

Jack Rubin (16:26):

Yeah, I think that's what's universal here is that the need is there and that the future of pay is on-demand pay. That's the future. How we get there, as you pointed out, there's a variety of sizes of corporations, needs that they have. Some of them want to have direct control over every aspect and each element of their employee experience directly. Some of them want simple, more integrated solutions. And I think the beauty of what we see going on in our industry right now is we've got a few of those different models out there to drive availability of, or one might call it penetration of, on-demand pay, instant wage access through those different models, through different employers, regardless of the size, and creating that choice and optionality. And I think that's going to drive a ton of innovation. It's going to drive offering a lot more features to the end users of the platform.

(17:18):

And I think we see within our own app exactly what you're saying. We're seeing users log in daily regardless of whether they intend to transfer or access their pay on that day; they want to log in daily to be assured: "The hours that I worked, the wages I should have earned, are they there? Do they register?" Right? They want to have the assurance that they can do that. And I think, like you said, this is the future. And I think integration with not only workforce management—you think about payroll, you think about time and attendance, shift management, what have you—I think that is a future avenue to rapidly expand the availability of these offerings within the industry.

Holly Sraeel (18:00):

What surprised you most when you look at the various size companies, small, mid-size, and then larger global companies? What has surprised you most about the employer and employee adoption rate based on company size? Was there anything notable that jumped out at you that just caught you off guard that you didn't expect?

Dan Loomis (18:21):

I'll start. Gusto serves businesses of all size, but our sweet spot is small, medium size, we'll say five to 50 employees. Obviously, we have smaller, we have larger, but we'll say that's the bread and butter. And we see universal adoption across the board. So there's no larger kind of distribution of adoption. There's a capability that's made available. Employees are interested in seeing, "How much money do I have? How much money have I earned? And what can I access?" And if we can answer these three questions, it turns out that these questions are important to probably everybody in this audience.

Holly Sraeel (19:03):

So they're universal.

Dan Loomis (19:03):

The vast majority of our workforce that we support. So we see it as kind of a universal solution. And if we have a capability, we have a feature, we make it available, and it's turned on, it's there if it's needed. And I think that solution for an emergency situation, it spans company size, employee size, it's a universal need. That's my take.

Jack Rubin (19:25):

Yeah, it's funny, they're almost identical. I could just say ditto. But I had two big surprises coming into working in this space. One was the rate of enrollment and adoption of this benefit relative to other employee benefits. I mean pretty consistently—and I think between us up here, we serve enterprises of varying sizes, pretty wide gamut—pretty consistently, enrollment and adoption of on-demand pay solution is in the top two employee benefits.

(19:53):

At some employers, it's second only to healthcare. It depends on the employer and the makeup of their workforce, and it's pretty rapid. That was an interesting, and now of course it makes sense because of the fundamental needs. The next surprise to me was interesting that Nico both mentioned is the rapid adoption of financial solutions through these platforms adjacent to on-demand pay. And you could say, "Gosh, aren't there other savings vehicles out there people could adopt?" They could, but they don't. Not by and large. In a lot of cases, they're not open or made as accessible. There's a lot of friction put in front of them that are removed by putting a part of the same platform. Same thing with credit building offerings, same things. We could go on and on, but I've been really pleasantly surprised that just by simply making available less friction, full non-predatory, straightforward financial solutions and offerings in the same platform, without even a lot of effort, that you're seeing a lot of adoption and uptake there.

Holly Sraeel (20:57):

So let me get your feedback on the projected size growth for the EWA software market. Some analysts have put the valuation at $780 million as of 2024 with a projected worth or valuation of $3.58 billion by 2033. Given the acceleration of the innovation, given the adoption, is that $3.5 billion by 2033 over or under?

Nico Simko (21:29):

When you say 3.5 billion, are you talking about the valuation of all of the companies? You mean three and a half total market?

Holly Sraeel (21:34):

Total market.

Nico Simko (21:36):

Total market cap of all the EWA companies? But that's under, in my view. I think it's going to be way bigger than that.

Holly Sraeel (21:41):

Well, it's good news for you guys, right?

Nico Simko (21:44):

Yeah, I mean, I'm just doing simple math here, but if you're thinking about the simple thing is that EWA has kind of doubled, and I've spent a lot of time trying to really pinpoint that, but the whole market will double over, I think, the next two years, and then the following two years will double again. I wouldn't be surprised. We're here and we're seeing 40% of businesses in America offer a wage advanced solution. So four times bigger than what we're talking about in five years. And I think that right now, you maybe have already a billion or two or three billion in valuation across the big players. So if I do that, I multiply by four. I think we're going to be closer to $12 billion in valuation. That is my quick math here on stage.

Holly Sraeel (22:27):

You did that math very quickly.

Nico Simko (22:29):

Yeah, but that's basically why I think.

Holly Sraeel (22:30):

It's not something you're not thinking about.

Nico Simko (22:32):

I mean, investors are very good at asking these questions, but yeah, that's why I think it will.

Holly Sraeel (22:38):

So that number was 12-ish?

Nico Simko (22:41):

12-ish, yes.

Holly Sraeel (22:41):

12-ish. Agree?

Nico Simko (22:43):

Agree.

Dan Loomis (22:45):

I'll let the EWA side opine on this in a slightly adjacent space.

Holly Sraeel (22:50):

Envelope is like mine, right? Not as good. Okay. So tell me, mobile-first strategies, how much has that affected or driven the adoption rate?

Dan Loomis (23:06):

I'll start with this. We have a significant workforce that we represent, and our number one goal is to provide them the tooling where they engage in their work, where they engage in their life. And that's obviously on the mobile device. We have a great set of web capabilities, but the one that has the most engagement is obviously mobile. So we've been quadrupling down on our strategy of mobile. How do we have a strong employer app? How do we have a strong employee app? How do we make sure that the capabilities that employee engages with on a daily basis are made available? Time and attendance, understanding my wages, withholdings, benefits—all these capabilities are mashed into a great user experience. And one capability of a super app set of capabilities is how much do I have access to? And when you tee that up in common jobs to be done, like clocking in or clocking out, viewing pay stub, seeing what my bank account balance is, when you have the appropriate placement for features, it turns out that the conversion rate is quite high. And it's not that it's necessarily immediately used, it's that the capability is active and in the moment where there's an emergency expense, having that deeply integrated, already onboarded and underwritten capability is super important. I think that Jack was referencing that before: the better the integration, the more deeply interconnected they are on an asset that you use the most, your mobile device, that a user's prepared to use the capability.

Jack Rubin (24:37):

Yeah, I strongly agree with that. I think being in a mobile-first environment just creates a platform for continued innovation. You continually remove friction out of the lives of the people we're serving. If you're turning over a hotel room or if you're working a retail cash register, you're not sitting in front of your computer, but you have a mobile device that's with you in the break room, it's with you on your bus ride home, it's with you on-demand. And one of the interesting—I'm really intrigued by all of the innovations coming out across our industry—one of the experiments that we're doing right now is taking that insight and saying, "Hey, we're removing the friction in the time between finding your paycheck and clocking your shifts or what have you towards accessing your pay. What's the next step?" Well, where do you want that money to go?

(25:24):

And that's where the digital wallets come in. And even a step further from that, let's say you're supporting a family member in Mexico or the Philippines or name a country. And if that's the case, you're more likely to be newer to the country and you're more likely to be underbanked or underserved. So you might be taking your paper check and getting that cashed and taking it to a money transmitter and going through a lot of friction. And then, of course, there's security concerns and what have you. And so one of the things we started experimenting with, in partnership with Visa, is having right directly in the app, the ability to look at your earned wages, your on-demand pay, and in a few clicks transmit that money to one of over 60 countries to the person you want to send it to in the method of choice that they want to receive it, whether it's to a bank account, a debit card, cash pickup, or even in a wallet. So I think that those kind of innovations, once you're in a mobile-first platform, it's right in front of you. The friction you can keep removing. And I actually think what we're seeing right now is probably nothing compared to what we'll see over the next three, four years as you described the growth in the industry. I think we're going to see all kinds of great innovations like that.

Nico Simko (26:29):

A hundred percent. And I think that the innovation's going to come in different directions, and market is so big. Financial services is not a winner-take-all market. Think about it. If you walk around saying, as a retail bank, "What's different between Chase and Bank of America and Wells?" It's like the logos are different, and then different geographies and have different branches, but at the end of the day, the products are similar. It's just that it's such a big, big, big market that I think that's going to trickle down to banking solutions distributed by the workplace or by payroll companies themselves. And I think there's going to be, depending on how you distribute, different solutions. One thing I'll add there is that what we're seeing that is really, really, really interesting, what gets me going, is that EWA is like an emergency. "Hey, I need, I'm at the gas station."

(27:20):

My favorite example is, "I'm at the gas station"—happened to me, interestingly, recently—"gas stations put a $150 hold on your card." Many of them do. Most people don't have $150 five days before their paycheck. And so you can go in your app, you can in a few clicks get your money right now. I can tell you it's a life changer. Instead of, I've been in a gas station with somebody, I said, "Hey, I'm actually $10 short, can you help me?" That has happened to me, but that's one experience. I think once you have people using that, you now earn the right to do more. Remittances is one of them, but I think what we're going to see is it's not about EWA; it's about employer-linked financial services. And I think Dan and the team at Gusto have thought about this, and I love that they see us as a component of an entire set of financial services, and I think the smart people will think like that. So anyways, I get excited as you can see, talking just about this.

Holly Sraeel (28:16):

So let's go there because I really do want to talk about what's coming. So we have argued by putting this panel together that this could spark the next consumer banking revolution. So if you look one to three years down the line, what do you see coming out of your part of the industry and what you're offering? What could we see on the dashboard or the app for employees and employers? And then what are you guys excited about? What are you thinking about pushing out? What types of consumer bank products could we actually see?

Nico Simko (28:59):

Great question. Yeah, go ahead, please, Dan. We talked about it over lunch, so.

Dan Loomis (29:05):

We did. This is a wild take, but across my career, I've worked in consumer banking, small business banking, payments, financial services, and now I'm at primarily a payroll organization. And for me, payroll has always been kind of over there. Not anymore. Not anymore. And I think when we look forward over the next handful of years, it's in my estimation that we'll see more financial services type players attempt to get much closer to the origination of the direct deposit, the actual underwriting and the data collection that an employer creates, that an employee creates. You have a lot of information here that allows you to better underwrite people, move money more expeditiously, store money, direct money to different routes. And when you're kind of at the hub of where money is originated from,

(30:06):

There's a lot of creativity and there's a lot of financial products that can hang off of that. So what does this look like? Probably more deeper integrations with consumer banking capabilities, probably the intersection of consumer and business banking capabilities, leveraging data that's created around the workplace. How do you actually lend faster, lower cost, higher repayment rates? And when you start to do this for people across their career, you see somebody at employer A leave, come to employer B, leave, come to employer C. And as a payroll provider that helps originate these direct deposits, there's a likelihood that you'll see that same employee come back into the ecosystem a few times. You have this portability of a relationship across a career, and I think that offers you a lot of advantages with the financial services that you can create for employers and employees.

Jack Rubin (31:04):

Yeah, I think it's great. I think I see there's so many trends and things we see in the future. I'll just narrow to three. One is I see further integration and leveraging an on-demand pay or earned wage access solution as part of a workforce management payroll suite of services or a financial institution's suite of financial solutions and offerings. You see both of those happening right now. I think we're going to see only more of that. I think second, an undeniable trend is that for employers, this is going to become table stakes.

(31:35):

Offering on-demand pay or an earned wage access solution is. We are going to reach a tipping point, I think in the not too distant future, where employers will not be able to retain talent without offering this benefit because it'll become commonplace. It'll become expected amongst employees. I don't know when that tipping point is in the TAM. We have different estimates here, but I think we will get there long before it's the majority of the market penetration. I think it'll become an expectation. And I think the third trend that we're going to see is a lot more innovation against these core needs that the three of us have been talking about. We look and we have worked in similar spaces, but we also do a lot of research with our end users and employees of our clients and what are the durable needs?

(32:25):

They're making money, and that's why people show up at work, accessing and moving that money—that's the on-demand pay. There's managing their spending and expenses, but on a very near-term horizon for the population we're serving. But after that, you've got saving for the future, building your credit, and paying down debt, right? These are durable problem spaces that I think we're going to continue to innovate in. I think we're seeing some of those innovations right now, but I think the ability to make not only those offerings available, to make them more seamless, to make the way that you save potentially be a way that also helps you improve your credit profile. I think that there's innovative tools and products out there that we can combine in these platforms that'll move the end user forward, and I think that will create a more durable growth opportunity for them.

Holly Sraeel (33:17):

What about virtual wallets and the ability for employees to send money to another country, send money home, if you will? Are you guys looking at that space?

Jack Rubin (33:33):

I mean, yeah, we are, right? And I think that's very much the case. We want to make it very simple. I mean, it's nearly instantaneous when you start on your first day at work with one of our clients, you can open up and create—we call it our Daily Pay Visa card—but it's an account, a virtual wallet that you can immediately start to receive money from. You can in a few clicks send money overseas to friends or family or whoever's dependent upon you in a different place. I think that kind of innovation across our space and across providers is going to become more common, removing the barriers for individuals to not only access their pay, but to move it where they want to.

Holly Sraeel (34:10):

Correct.

Jack Rubin (34:11):

And have more choice about where that money goes. There are some models that are more of a closed system, a walled garden that kind of remove that choice. I think over time the trend will be towards more choice and more ease of money movement, if not interoperability.

Holly Sraeel (34:30):

It'll likely be driven by employees. I mean, the more the younger generations who are completely device-dependent, the more you give them, the more you show them, the more they'll demand. It is an instant culture. So how much market research do you do in order to get ready for what's coming?

Nico Simko (34:56):

Not enough, I'll be honest, but we try to do as much as possible because one thing I've learned building Clair is that we are often wrong about what we think customers and consumers need in financial services. And so we try to upfront do a lot, but also try to put something out there, test it, see what comes back. One thing I've seen is that EWA is again, just a tipping of an entire set of employer-linked financial services. I know that Dan believes in that and has built an enormous amount of things at Gusto. I think they're steps ahead of everybody else. But things like—I'll give you two simple examples. One, many people have cars here. You get a car loan. The cost of your car loan, a portion of that is allocated to the fact that the lender doesn't know if you still have your job or not.

(35:54):

If you can just connect that to your place of work, you're going to be able to decrease, even if it's just temporary while you have this job, your cost of capital, because your risk goes down. Another good example: every single day I live in New York, I take the subway to go to work. I'm reminded that the tax code is built in such a way that if you're commuting to work, you have something called commuter benefits, which typically it's this card you get via your payroll system or your employer gives it to you. But why can't your regular bank account or your payroll-issued bank account can automatically have that insight? And so you see, I can go on for the rest of this panel just explaining what employer-linked financial services means, but it's cheaper products, it's better distributed, it's more seamless, it's less steps. It's trusted because you trust your employer to pay you at the end of the month. So why can't you trust them to give you financial services? And I think that this is the world we're going to. EWA is just, as Dan said, it's just the number one requested feature. Great. We'll give it to everybody, but again, we need to think bigger here about our employer-linked financial services.

Holly Sraeel (37:00):

So I have a question for you, Nico. From the time that you launched in 2020-ish to now, how much has your thinking changed just based on your experience?

Nico Simko (37:11):

I mean so much. I was not wrong, but I was naive to think when we started in 2020 that every single person would want this debit card called Clair that I created and every single person would want it. We didn't have the trust that, for example, a Gusto has because we didn't have a household name. So we were starting at a low level. We were not a Chime that has spent over a billion dollars in marketing. And so my thinking had changed towards I need to partner with people and payroll companies that are fully trusted that the employees know, where they have the ability to build their own banking solution, and then really empower them to have incredible features. And so I tried to then sit down and say, "Look, you guys have the brand, you have the reach and all of this. Let me help you try to build products that technically would take a little longer." As you can see, very different product strategy, and then giving as much choice as possible to the consumer.

(38:19):

I worked in banking. I was doing fine, but I decided that I felt like there was something that I could leave a legacy to, which is better financial services for consumers. I thought I would know exactly what they needed. For a long time, we were like, "Hey, you have to use our card. Instant advances are always going to be free." What I realize is consumers actually want it to their own card. And if the only way to do that is you have to charge them a small transaction fee, they much prefer that than forcing them towards something that is a lot more convoluted from a product perspective. And so I am very transparent with everybody. I've learned a lot, and I still think that I still don't know everything, and I'm still learning every single day.

Holly Sraeel (39:02):

Jack, you?

Jack Rubin (39:04):

Oh, I think taking that learning mindset is so important and staying humble. And I've been surprised. I've been surprised at the things that are more wildly popular and more quickly adopted and the things that aren't. And I think the ability that we have when you're already in the palm of somebody's hand to just try things, experiment, offer them new options, and see what sticks, and iterate and learn along the way. But I think the most important thing is to take that learning mindset and that founder's mindset and stay humble and be more obsessed with the problem we're trying to solve for people than with the solution we're trying to give them. And I think when we do that, that's where we get even stronger innovation.

Holly Sraeel (39:49):

Okay. I have one last question before we take questions from the audience. I'm going to start with Dan, and you can answer this any way you consider. Me, I'm James Lipton. What keeps you up at night?

Dan Loomis (40:05):

My 1-year-old baby girl.

Holly Sraeel (40:09):

Oh, that was an easy out.

Dan Loomis (40:12):

Her fourth tooth is coming in, boy is she cranky. What keeps me up at night, I'll parlay this against the last question. Every day is a school day.

(40:26):

We learn something new every single day from our employers, from our employees, from the market. And boy, I want to deliver for our employees for sure. And these things don't come for free. They are big investments. They take time to build, they take time to polish, they take time to deploy to mobile devices. And then you take something to market and you hope that it serves a need. And what keeps me up at night is making sure that our utilization with our development capacity is applied appropriately to create the most value for our customers. And thankfully, we have a pretty good track record of that, but we try to minimize risk and actually deploy a lot of capability that creates value for our customers. So thinking about that.

Holly Sraeel (41:14):

Right. Jack, what keeps you up at night?

Jack Rubin (41:17):

I go to sleep at night just fine. But I wake up every morning in a panic, and I wake up every morning in a panic because I remember that there's 150 million Americans living paycheck to paycheck.

(41:27):

And that's just in America, right? Our clients have asked us to go with them to Canada and the UK, which we recently expanded into, but it's 150 million people living paycheck to paycheck and we have products that can help them. And I wake up every morning thinking I want to serve them now. I want them to have on-demand pay now. I want them to have access to these better and less predatory financial products now. I want to break the paycheck-to-paycheck cycle for them now. And then that's what I spend my day trying to do. And then by the evening, of course, try to lay my head down on the pillow and know that tomorrow we get to take the learning mindset, we get to take every day as a school day, and we get to try to go back out there and serve more of them.

Holly Sraeel (42:07):

Or we know the 12 billion is keeping Nico up at night. But no. What keeps you up at night?

Nico Simko (42:13):

Oh, it doesn't keep me up at night. No, I'm kidding. But I think there's different horizons in financial services. I think we're going to see an enormous amount of change. One, because I think as humans we underestimate how fast, especially in the past few years, technology changes. I think AI is going to change the way we interact with technology just at a human level. For example, I went to a museum recently. My wife knows that I get a little bit bored, but now I actually love it because you can take a picture of something and you can interact with a machine that tells you what to. I think we are underestimating how much this is going to change, how much we're going to be looking at a phone. I would be surprised in 10 years from now, we still have a phone in our pocket.

(43:05):

Things are going to change that way. So on that longer-term horizon, I would say what does that mean for financial services? Most countries are now developing real-time payment systems. The United States is slow, but you look at Brazil, it's going super, super fast. So that's also going to change long-term, the horizon of what's going to happen. And then in the medium term, my bet is that people like Dan and people at Gusto and leading payroll companies are going to be changing the face of financial services. And we want to help them by powering some solutions. We know we're not going to be able to do it all. But that's also keeps me up at night because it's what is the next thing and how do I make sure, because there's a lag. You have to build a lot. We got so many licenses to be able to do what we do.

(43:56):

How can I make sure that I'm ready when the market needs us? And in the very short term, there's a lot of things that I think I would like to be able to do better. One that really keeps me up at night is I'm really questioning whether as a user, if you're using on-demand pay a ton, meaning you're in the app taking money all the time, it's like is on-demand pay the right solution? And if not, can we actually give you something better than that because it shouldn't be clicking in every single week that you need an advance. You probably need a credit builder product. You need something that's a lot more convenient for you. And so that really is the thing. The users are really happy with it. We have an amazing NPS score, but I'm like the higher level is like, is this really the right thing? And how do we build a product that is not paternalistic where we force you to go into something you don't want, but at the same time that we kind of edge you towards something that probably is better than taking advances all over again. So to answer, a lot of things.

Holly Sraeel (44:53):

Okay, we're at time. So let me take one question from the audience. Anybody got a question?

(45:02):

Who's got the microphone? Thank you. Alright. Yeah.

Audience Member 1 (45:08):

I just think on that point, Nico, I was thinking the same thing in terms of you give access to people and the constant clicking and taking those wages in advance, and then you think about the financial well-being of the employee or the person,

Nico Simko (45:23):

Yeah.

Audience Member 1 (45:23):

And do they get into bad habits, bad spending habits, and buying things that aren't important, and just more of those impulsive type of buys? And so then when you think about coupling it with other financial solutions, how do you provide other tools that help them with the things that I think Jack you were talking about, which is more savings and debt pay downs, but you're able to actually provide that type of tooling, not just education, but actually tooling along with the wages to help them along the way? And so it's more of a comment, but I was thinking about the same way. How do you control that going forward?

Nico Simko (46:01):

So, I'm spending an enormous amount of time with all those users. I have gotten coffee with them, I have met with them. I met a bunch of school teachers in Georgia that were using this product a lot. What I've realized is that they're not going out there and shopping for fancy new shoes. They are trying to put food on the table. And the number of times it's said it's either food on the table or gas to get to work. That is what they're using the money for. And so I hundred percent agree with you, and we at Clair took at the time a weird stance. We're like, we're going to give you something called a Till Box. For the non-nerdy people, it's like a standardized federal disclosure. It's similar to what you get with your credit card when you sign up, and it's like big numbers of how much this costs.

(46:45):

And on every one of our advances, there's a total. The reason why we wanted to do that is because we said, "Look, there's better credit for you out there. Please go get it. But this is your standardized view. You should recognize what this box looks like so that way the consumers can decide whether this is the right thing or not." And when I tell users, "Hey, you are taking this over and over again," they're like, "Yeah, but that's the best thing I can find right now. And it's either I put food on the table or I don't." So this is an honest question I'm asking myself, should I restrict it? I don't think so, because then this person can't. But should I use our brain power of the company and spend a lot of time with Dan talking about, I was like, "What do we want to do for those users?"

(47:22):

And I think it's okay for us in the period that we're incubating this to keep offering it, but saying it's a known thing we want to be solving. And I'll end with this. I think people, especially in nice environments, just don't understand the day-to-day life of people. And I think it's important to go back to understanding the problem, understand what they need, being very, very clear. Not trying to be, by being clear is like give the right disclosures to them that the government asks us to do. But once you do that and you keep the fee to as low as possible, this is the best form of credit they have in the country.

Jack Rubin (47:58):

Yeah, I agree. I mean, there is an assumption, and I think it's a fair assumption to make. It's a natural assumption to make that people have access to their pay more frequently, that they'll use it in an irresponsible way. The truth is, that's not what happens. They're using this money to meet a need today. Your gas tank doesn't care that your paycheck's coming tomorrow if it's empty today.

(48:19):

And if you don't fill it, not only are you not getting to that shift and not earning, but your employer has an unfilled shift. And if that's home healthcare, then that's somebody who's not getting home healthcare that they need. So there's a lot of implications of not providing it. But then the next step, of course, is to put in front of somebody, not just a better alternative to what would they have done in that situation? Run up a credit card bill if they have that available to them, high-interest payday loan, go back to friends and family for the fifth or sixth time. So it's better than the alternative. But then the question is, what's the next step? How do you help them break that paycheck-to-paycheck cycle going forward with these better offerings?

Holly Sraeel (48:53):

Alright guys, we are over. We've got another session coming, so stay put. But my gratitude to Nico, Jack, Dan for sharing their expertise, and I'm telling you, watch this space. Thank you