Launch HN: Payflow (YC S21) – Allow workers to access their wages instantly
75% of employees in Spain and Latam live paycheck to paycheck and many have no savings. They often run out of cash before payday, especially if they have an unexpected expense. This is an issue for employers too, because high employee turnover amongst low-income employees is costly. Most employee perks (e.g. health insurance, flexible benefits, snacks in the office), which are so familiar to HN, are usually reserved to white-collar workers in Latam. Said employee perks are too expensive for blue-collar employers, and more importantly are not what employees who are struggling with financial instability actually need.
Given the inequality (and wealth) of our societies, we could argue that low-wage workers ought to be making more in the first place, but in the meantime people are making what they make and often have an urgent need to access that money faster. For example, a few weeks ago, we received a call from an employee who was stuck at a gas station in the middle of nowhere. He was out of gas and out of money. We helped him activate his Payflow account so he was able to instantly stream a portion of his earned wages. This allowed him to pay for gas and to continue on the road.
Every week we receive emails from potential users (who are unable to use our app because their employer has not yet signed a contract with us) and they literally tell us “I need money”. We thought employees would use our app because it’s innovative, but they mostly use it because they really need the money. This came as a surprise to us. We knew there was a need, but we did not realise the need would be so pronounced.
We met 8 years ago at MIT and discovered a company called DailyPay that was offering on-demand pay in the USA. We thought this was really cool, but didn’t really see it working outside of the USA. 8 years down the line, we saw a couple of players pop up in Europe and realised there was an opportunity to take on-demand pay to other countries. The pandemic was the perfect time to start because demand for short-term credit spikes in a crisis. That’s when we decided to get back together in Spain and launch Payflow for Spain and Latam.
Our mobile app allows users to see and withdraw their accrued wages in real-time. Employees value our product because it’s free, private and instantaneous. It’s free because we charge employers, not workers. More on that below.
When the user makes a withdrawal, we issue a real-time payment to their bank account, so they receive the money within seconds. On the backend, we have an integration with the employer’s payroll software so we know how much should be available for them. This is the tricky part. We need to know how much they have earned and if they are still employed by their company. It is hard to gather this information: payroll systems are complex in large companies, most integrations are on-premise, the market is fragmented and it is hard to create plug and play solutions. We realised we could solve it when payroll providers started opening their APIs to third parties. We saw this as an opportunity to solve a longstanding problem using technology. In reality, things were (as usual) harder than expected because a lot of payroll software integrations still have to be done on-premise.
This is a hot market right now: there are 150+ startups worldwide working on it! The hype is recent, most of the 150+ are just getting started, less than 10 have raised $5M+ in funding. However, almost all of these startups charge employees a fee for each transaction. That make...
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[ 3.2 ms ] story [ 162 ms ] threadWhat stops employers from paying wages more often right now? When I worked in the US, some places would pay you every two weeks. With instant bank transfers, couldn’t that frequency go down to weekly or daily, without the need for a middleman?
For what it's worth, I have seen that process used in both the private and public sector as well as with organizations that employ thousands of people.
My understanding of this solution is also that it depends on the payroll systems? As such, they also depend on manual batching effectively, before the advance can be paid.
I'm having real difficulty working out how this could possibly have come as a surprise, of course people are using your pay advance app because they really need the money. Why else would someone take an advance on their pay?
This is called "the Copenhagen interpretation of ethics", in which any interaction with a situation in an attempt to improve it somehow gets warped into shouldering responsibility for the preexisting situation in its entirety. In this case, you've somehow transfigured substantially reducing the cost of credit into "creating global poverty".
A zero interest loan does not communicate to the user that they are reducing their optionality until they are stuck.
Understanding that you've received X pesos now and will receive X less in two weeks is a lot simpler than implicitly calculating the NPV/default risk of high-interest loans, both from an intuitive and an explicit budgetary perspective.
Even if we (incorrectly imo) assume this dynamic plays out the way you say it does, it's quite a bold claim to say that this putative psychological effect comes close to outweighing a 3000% (or w/e) reduction in APR.
All you have to do to get backpressure is to see that spending X pesos now means that you have less than X pesos in two weeks. Because, fees and interest.
> It wasn't the interest that got me, it was the lack of money.
This is precisely my point! The same thing applies for zero-interest loans.
Your comment says "it's not a reach [that the presence of interest is what makes people conscious of their payday loans]", and then says "the presence of interest is not what makes people conscious of their payday loans". Is this completely self-contradictory, or am I missing something?
Our conclusion is users are taking small portions of their salary to cover unexpected expenses.
Users tell us they love this, because otherwise they would have had to ask a friend for money.
I know that is part of your offering, but your main product contradicts it completely, doesn’t it?
Easy borrowing does not seem to promote saving.
That is not something you learn. You just sit in your house and wait for the paycheck to come in. I have never learned to save money. It just happens to me.
Out of curiosity, why is the app UI and feature set practically identical to Wagestream (I worked there last year, so i'm pretty familiar with it)?
To top it off, Payflow is a (near) synonym for Wagestream.
I know Payflow has a subtly different value proposition (not charging for withdrawals). And it's totally conceivable that this is the obvious UI for this feature set, but it's really hard to miss the glaring similarities.
As a native Spanish speaker, the text read awkwardly. I chalked it up to regional differences (LatAm v. Spain) but this explains a lot..
A suggestion: you seem to recognize that it's too late to deny that you copied Wagestream's branding wholesale. Commenting repeatedly on this thread implicitly acknowledging the fact while not addressing it head on is not a good look.
* https://www.dailypay.com/
* https://www.ceridian.com/products/dayforce/payroll/on-demand...
* https://www.paylocity.com/our-products/payroll/on-demand-pay...
As part of my advisory business, I've seen a few companies tackling this in Africa. My biggest question has been, isn't this a "feature" than can be deployed by the existing Payroll companies?
These days we have a lot of Credit As A Service companies. Why can't a Payroll service connect to them and provide this service as an add on.
To summarize my question: can your innovation get distribution before the Payroll services get (this) innovation?
Or wouldn't you inadvertently have to encroach into that space eventually?
Or do you see yourself extending towards the credit side of things?
All the best!
- Living paycheck to paycheck is a problem, but the underlying cause is more often than not having a job month by month. Even more so since the pandemic. The majority of people work in informality, only have contractor contracts or work for temp agencies with the outlook to eventually get hired into the client company.
- There is very little trust within society. People are very skeptical, justifiably so, to get screwed over by new financial products. Also employers have very little trust in their employees. At least from an European perspective it is ridiculous what hoops people have to jump trough to get basic jobs. Background checks, lie detector, medical exams, etc. Which means it can easily take 1 month+ from first interview to starting work.
- Economic gap is massive. The decision makers you are going to sell your product to often live and have lived their entire lives in completely different universes than the potential users. So you are going to have mixed experience how empathetic they are to the cause. Some certainly are and want to make a change.
- Many people don't have bank accounts where you could transfer the money to. As far as I know this has changed quite a bit during pandemic but cash and cheques are still very common.
- The very small amounts ($50-70) you mention are quite a bit of money here. Minimum salary is $260. A small amount here would be more like <=$5. Don't have in my head what the fees and taxes on bank transactions are.
- The users are going to have a ~$50 android phone laden with ISP nonsense, outdated OS, pre-paid expensive data plans and flakey internet connections where they live. So the app needs not just be shiny, but efficient.
Within the group we also launched products in Mexico and Peru, where some things are different but haven't been involved much in that. Happy to chat about if you are interested.
We are indeed aiming for low income worker population in LATAM and your calculus is right:
- Here we see around 50Euros for a salary of 900/1000 so around 5 to 7% of your salary withdrawn.
- We would expect even smaller quantities in LATAM.
App is super lean and accessible by every phone and building trust among our community (users & companies) is key.
I do not know if this is financially responsible. How exactly will this prevent a horrific snowballing effect?
Also, bear in mind that our average user in Spain takes out 50$, whilst their salary is >1,000$. We also regularly survey users to see chat reasons they make withdrawals for. Our conclusion is users are taking small portions of their salary to cover unexpected expense.
It’s so much better than paying for an expensive overdraft!
This product doesn't even seem to have the risk of generating fees directly.
There are instant approval credit cards and low credit limit cards.
And credit cards even allow cash advances at 20-30% annually.
So, for the example with the gas station customer, using a credit card and carrying the balance for a few weeks would cost them $0 in fees if paid back in the same timeframe as this pay advance. Or they could take a cash advance from an atm and pay 30%/365*num days until repaid.
And while there are exceptions, typically people with horrible credit are likely to continue the cycle.
The second thing is most blue-collar workers in most countries can’t get credit cards at all.
Besides that unpaid balance carries interest.
The idea is to de-risk by bringing their employers into the equation :)
If credit cards are payed without carrying a balance they are all 0%. So that’s at least 25-55 days depending on when the charge is made.
>Workers living from pay check to pay check have traditionally been vulnerable to exploitation
And the proposed solution doesn't fix that. Most of those people don't have a problem with unexpected expense once a year. They don't budget and are short on cash every month. So now imagine Bob needs money halfway through the month. He takes out 50% of his pay. He uses is for immediate needs and than has to live at 50% of his pay for the next 1.5 month.
How is his situation any better?
Also I can 100% guarantee you, most people working in this space are working on loans for those users. They don't plan to stay as just company benefit. But even if you will 100% never do that I just don't the see advertised benefit for the workers.
This is just something that sound nice when you don't think too much about it. That explains why the companies are eager to implement this benefit at their companies. At the end the workers will struggle just as much and the struggle will stay hidden from the eyes of the employers, because of the financial problems stigma.
I think the idea is that it helps people avoids predatory payday loans. If Bob needed 50% of his pay for an emergency, he could go to a payday loan and end up spending a whole paycheck or more just paying it back over time.
The solution is government regulation and societal safety nets, not this, but if one’s government doesn’t fix the problem, there’s not much you can do besides this.
I am leading BizDev at Payflow, I joined due to ethical reasons & social impact. Happen to be that I am southamerican and pretty familiar with people living paycheck to paycheck.
The reason why they are better off is because we are the only alternative that is free for them: Credit cards, loans, etc are not zero-rate. Far from that a loanshark can charge up to 3000% for a short term loan in LATAM.
We are bringing employers into the game, to actually do something and pay so that their employees get the zero-rate that is so popular for high income workers through their cards or banks.
What reduces your purchasing power is financial expenses, not accessing your money earlier.
We won't solve every money problem, but at least we are solving some and reducing low income workers exposure to predatory finance.
Hope you appreciate my answer, it was 100% sincere. Fede :)
People that have infrequent issues where they need to juggle money around could use this. They could also simply save money, since the implication here is that they have enough money but not at the right time. This is a nice option for them to have, though. I would also expect people in this category to have access to non-exploitative methods of financing. If they don't have savings, they probably at least have assets for use as collateral in a loan to get the interest rate down.
For others, they have frequent issues where they have to juggle money around. Their problem is cash flow, not the timing. They're going to continue to fall behind on their bills. They get a $500 paycheck, and have $450 in bills. They need $250 to fix their car, so they take it out. When their paycheck comes, they get $250 and can't pay the other $200 in bills. The late fees on their $200 bill they can't pay are going to stack up to eat the $50/month they could have saved. They're still paying financial expenses, they're just in late fees instead of interest.
credit-worthy people can easily fix this issue with credit cards, which fix the paid-in-arrears issue, and also smooth out spiky intra-month cashflow. but I can see this product being very useful for people who can't get credit cards or don't feel responsible enough to use one.
Providing more competitive and safe and professional options can only help, it can't make an already-bad situation worse.
The only situation worse than having to take a payday loan is not being able to shop for a decent vendor who isn't trying to screw you.
$5000? The median pre-tax income in the US is only $2854/month. https://www.ssa.gov/oact/cola/central.html
Op is probably in NY or SF where that doesn't even make you middle class and people who make double that still don't feel rich. $2854 a month would be absolute poverty wages in many parts of the country.
Conversely my company has announced it's not going back to the office ever. I'm tempted to go back to Tennessee where I can live live a king on my California middle class income.
Yes this is "enough" but no, it is not enough (especially after having worked and lived for a few years in a medium/low cost of living city).
That being said, $5k/month for "basic expenses" is definitely ridiculous. NYC/SF COL is like 30% more expensive than where I'm living, not a full 2.8x more expensive for basic expenses.
Edit: Also worth noting that in this context the $5k/month is spendable, so in SF for example this translates to about $82k/year pre-tax income, which according to the 2019 census is well above the median individual income of ~$52k.
Assuming that not everyone can be successful in life (in spite of having boatloads of IQ + work ethic) UBI might be one of the few ways left to reduce generational in-equality. Don't get me wrong - I am no fan of socialism/communism and I understand the problems that come with a collectivist mindset. But I am also practical. I certainly don't want to live in a dystopia where a select few "masters of the universe" type rule over vast swathe of humanity.
Then it would have to be funded with local taxes. Why should people with a median salary pay taxes so that someone can get a UBI that is higher than the median salary?
>Assuming that not everyone can be successful in life (in spite of having boatloads of IQ + work ethic) UBI might be one of the few ways left to reduce generational in-equality.
Or you could just get rid of money hoarding and land hoarding. Just think about it. The time people spend unemployed or underemployed is gone but the money isn't. Thus the value of the claim to labor (money) is greater than what the economy can support. The inevitable result is inequality just from a pure logical perspective. The conventional solution had been to just let the economy grow endlessly so that the economy becomes strong enough to support all the freeloaders. Alternatively you let inflation act as a soft default on that unsustainable claim to labor.
https://www.npr.org/sections/money/2019/08/27/754323652/the-...
I don't even take home 5K/month and I'm a professional software dev. Granted the reason is I am maxing out every pre-tax savings plan I can (retirement, HSA, etc.) but the notion that a 22 year old couple should be getting 120k/yr for doing nothing is absurd.
Instead of jumping to straight UBI we need to build an abundance of housing that is of good quality, affordable to build, is operated by the state and is available to everyone regardless of income on a cost plus model. Also given that rent is most people's single biggest expense we could take the pressure off the poor. This plan however is politically untenable as affordable housing is something that anyone who owes money on their home does not want
since you're willing to take incremental steps, perhaps we could have the state stop preventing cheap housing from existing, first.
it's not even legal to rent out decent, clean, individual rooms in many places.
This is extremely paternalistic and shows how little you automatically think of someone who isn't paid a lot of money. You think that people who don't have money, their problem must be budgeting ("stop eating all that avocado toast!!"), so you need to slowly ration out their money "for their own good." Complete ideological BS.
The two week (or so) delay between hours worked and money being deposited in your bank account is a free loan from you to your employer. That's wrong. People should be free to access their earned income as soon as they earn it.
I do agree that this sort of product can easily become a payday loan system with terrible rates, but streaming your wages as you make them sounds like a pure good.
It's not going to solve anything because they are just taking money early that they will need next month.
It might seem attractive initially, but within a few months the status quo will have reset and those employees who were living paycheck to paycheck will still be living paycheck to paycheck, just now it will be day by day waiting for their accrued amount to increase.
I suspect as a company you could do well, but you aren't solving any problems for the employee. And you may find that as business pressure increases you'll end up exploiting them in some way because they are vulnerable and have little protection. It won't be long before someone on your board says something like "hey, we could make a bit more money if we start charging x% interest to get early access pay they won't accrue until next month. That's fair because we're taking the risk they might not accrue it all." And before you know it you are just as bad as every other payday lender out there.
This unexpected expenses thing sounds like poor justification to me.
And charging the company Vs the employee is no different. If you didn't charge the company they could instead increase the wages of their staff by the equivalent amount. You are just taking money out of the potential pot that goes to the staff. Staff costs is just a single line on our summary p&l which includes salaries and benefits.
Except now they have money available to them in realtime, continuously according to the work they've put in, without having to wait for discrete points in time where their bank account refills.
> This unexpected expenses thing sounds like poor justification to me.
The fact that people use it shows people want it. The paternalism towards people who don't have enough money is really staggering. This line of argumentation reeks of "Poor people cant manage their finances - they dont know whats good to them"
> And charging the company Vs the employee is no different. If you didn't charge the company they could instead increase the wages of their staff by the equivalent amount. You are just taking money out of the potential pot that goes to the staff. Staff costs is just a single line on our summary p&l which includes salaries and benefits.
Salaries have other pressures maintaining them besides available funds for salary, like minimum wage and market rates. As we have known for years based on the utter failure of "trickle-down economics", salaries paid and available funds often have little to do with one-another.
So overall, I'm trying to say that I do see some valid concerns here, but I also think there could be some value.