As the coronavirus pandemic hit workers’ wallets, many turned to earned-wage access (EWA) platforms to access a portion of their earned wages prior to payday. Recent research suggests that in 2020, workers used these services 37 million times, accessing nearly $6 billion – nearly double the amount just two years before.
The mode of delivery of earned-wage access offerings depends on the provider, with some integrating directly with employer payroll systems, while others are offered directly to the consumer. Regulators have been increasingly looking at how to oversee this burgeoning industry.
An early mover in this field is Even (formally known as Even Responsible Finance, Inc.), which was founded in 2014, and has raised $52 million. Even, which integrates with employer payroll systems to deliver EWA, gained attention early on in its history through its partnership with Walmart. It now serves more than a million employees at large companies, including Humana, and last November, the company began partnering with PayPal to offer EWA to PayPal employees.
Even recently hired David Baga, former chief operating officer at Lightspeed Venture Partners, as its CEO. Co-founder Jon Schlossberg became executive chairman of the company. The company said it recently crossed $3 billion in on-demand pay transactions since it began offering the service in 2017. The company also claims to have helped Even users save $250 million of their own money.
FinLedger caught up with Schlossberg to learn about Even’s strategy and what’s next for the company. Comments have been edited for clarity.
Can you give me an overview of how your company got its head start?
We started the company during Thanksgiving of 2014, and then in Q1 of 2015 the New York Times reached out and they wrote a story about it in the Sunday magazine. My mom was proud! We were figuring out how to tackle the problem that we set our sights on at that time, which was income volatility.
Then a month later, a Walmart executive called my cell phone number.
Is that how your relationship with Walmart began?
[The Walmart executive said] ‘I read about what you’re doing and how quickly could you offer it to Walmart associates?’ I said we haven’t built anything so we can’t offer it quickly. But she replied, quite surprisingly: ‘How can we figure out a way to do a contract where you work on the product you’re working on, but you do it with Walmart associates, so you can ensure that what you end up building helps them?’
So they paid us for three years initially to do research and development for this EWA. What came out of that three year period is, for lack of a better word, a platform of tools which are designed almost like a system to make it possible to save money.
So this was a kind of beta launch with Walmart?
We were really testing a bunch of individual features like a minimum viable product we built over the course of three years.
One of the things that we did over those three years was to build technology to solve very niche problems. For example, we had the luxury of spending three years building this thing that is really good at one fairly trivial task, which is looking at transactions and identifying bills. That powers one of the features of the platform. We did a lot of research over this time period to try and understand the problems that people are [facing] living paycheck to paycheck.
What did you learn?
One of the things that we learned was, when you’re an hourly worker, your income can fluctuate by hundreds of dollars per paycheck. One of the luxuries that we had of building technology over the course of three years, [is to be able to build] another set of algorithms, which looks at the schedule that we ingest from the employers attendance system, which are connected, running it through those algorithms, understanding the volatility and being able to predict how much money we’re actually going to have in your bank account when you get paid.
How are people using Even?
EWA is actually our least used feature. We have a 65% daily active user rate. And in large part, what people are doing is not Instapay (Even’s EWA offering), but in fact, 35% of our members have never taken Instapay. One of the main things they’re doing is they’re coming in the app every day to see how much money they earned so far and how much they’re going to get when they get paid. If you go on the subreddit for Walmart, one of the things [people] will talk about is the pay projection feature because of how it gives them a critical piece of information which they need to run their lives. That gives you the ability to plan – the ability to make the plan or the budget, and that’s what we call Okay to Spend.
People who, on average, are living in the red, coming into using the platform, and three months later, we’ll have $163 in liquid savings in their accounts.
How do you get paid and who pays you?
This illuminates I would say the biggest difference between us and [the other] earned-wage providers. We believe that employers should be paying, so we charge employers an access fee or a [monthly] membership fee for their employees. The price varies based on location choices [the employer] makes, but it varies based on location choices [employers] make, but it’s somewhere between $2 and $3 per eligible employee per month.
How do employees get their money? Some platforms ask that it be sent to a debit card.
I hate that, and so do most employers that we talk to. We can do [ACH payments], but most of our transactions are instant, either because it’s push-to-card real time payments, or they can pick it up in cash immediately for free at any Walmart nationwide.
Do employees pay for instant payment?
So you monetize based on fees employers collect from you?
[It’s about] the value we are creating for employers, and that’s a harder business to run.
As the earned-wage access space matures – there are so many platforms already – some charge fees for instant access and others don’t, and some integrate with employers and others don’t – what are your thoughts on where it’s going?
Now that this market is a little bit more mature, and the regulation and legislation is starting to crystallize a little bit, many large employers are offering it. I think it’s time to take a hard look at whether or not this is a good thing.
You offer on-demand pay, but you don’t want to be known for that only. So that implies to me that you have plans to go beyond that. What are your thoughts on how your product suite will evolve?
If you look at the framework from the Financial Health Network, including spend, save, borrow and plan, those are the four pillars that you need to help people with, in order to empower them to start saving money and creating positive cash flow and positive net worth.
A tool like EWA is a significant step forward, especially if it’s offered for free because it allows you to solve cash flow problems affordably, so you close that hole in the bottom of the bucket.
The underlying problem here is that people don’t have money in their bank accounts because they don’t have positive cash flow. That’s what this market needs to go and certainly that’s where we’re going. We’re making a big bet, which is that we need a modern 401(k). The government has opened the door. The Consumer Financial Protection Bureau worked with [nonprofit] Commonwealth to create a Compliance Assistance Statement of Terms Template to allow employers to easily apply to offer auto-enrolled, short-term emergency savings (products).
We have a savings product on the market. We are working with several of our very large customers to get this auto-enrolled emergency savings vehicle launched to their workforces. We have a goal of doing that in the first quarter next year. That absolutely needs to be the future, but it also needs to be paired with other tools that make saving money possible.