Evolving Regulations, Evolving Payroll: The future of Earned Wage Access with Clair CEO Nico Simko

Earned Wage Access has become an important value proposition for workers and many neobanks generally offer it. But for larger incumbent institutions, few offer EWA and a lot of it has to do with the lack of regulatory clarity – each state has a different approach to it. But that’s changing. 

Nico Simko, CEO of Clair, joins me on the podcast to talk about the evolution of EWA and some of the recent legal moves some states have taken to clear things up. Clair is a free on-demand pay app for front line workers. 

In addition to drilling down on regulatory changes for earned wage access, we also tackle:

• Clair’s distribution strategy
• How the app helps people save money
• The mechanics of wage advance and how they work
• Clair’s fundraising history and where Nico wants to steer the firm in the future

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The following excerpts were edited for clarity.

Regulatory changes

Let's start with the essence of what wage advances are. If you go back, say 20 years, wage advances were really hard to build because the data that sits within employers wasn't really available to financial institutions. And so what you had left was basically a world of not free instant wage advances – come pay me $400 over the course of a year to get $100 in a payday loan. 

So of course, if you look at the body of law of instant wages, it’s actually ‘consumers, don't go to payday loans’. What has happened is all the wage advance companies historically have said, Well, this is not a loan, this is not a loan, this is not a loan – it’s an advance or something else. Because the body of law was not ready for a product like this one.

That created a lot of friction. There's good and there's bad friction. I think this is good friction in that there is an innovative product that consumers want and is better than what's currently in the market. But the body of law needs to first analyze these products. The DFPI in California did this, and they asked a lot of wage advance companies to submit their data so they could analyze what was going on. And Missouri and Nevada were the first states looked at this discrepancy between where the law was and what these innovative products were doing and said, Hey, you know this is way better than what's out there for consumers paying even $2 or $3 for $100 one time. 

If you analyze that, that's way better than most things. So we should allow these players to operate and we should give them an ability to get a license. Maryland and Connecticut do think it’s a loan. So what's going on is you're going to have this discrepancy between states that think this is a lending activity and those that don't.

We're kind of in the situation right now, which is fantastic, that states are starting to take stances. And that's great for the ecosystem. I think there is still something like 45 states to go that have not taken a stance yet. I think based on everything I'm reading, publicly available, I think California will edge on the side that this is a form of credit, a form of lending, because they're like, Hey, this is lending, pretty simple. You give money to people who expect to get paid back. So you need all the standard disclosures, disclose effective APR, and then it's up to the consumer to decide whether they want to take that advance or not. I completely agree with that. 

Getting into EWA

Nico Simko, Clair: When I was 18, I got an unexpected offer to come and do my studies in the United States. My family's from Argentina, and I grew up in Switzerland. When I came over, I ended up working hourly jobs for about three or four years of college. And my job, throughout this entire time, was the same: I was an economics tutor. I worked hourly, every tutoring session that I did counted for a certain amount of hours, and then you calculate the hours and that got paid. It was a two week pay cycle and the university needed to print a check. Then they sent it over to me. So I got paid every three weeks.

That was around 2012. Venmo was starting to have some traction, it was a tiny startup with like seven people. I signed up for Venmo literally the same week that I was complaining to my friends that this thing of checks getting paid and the two week pay cycle made no sense. In my head, I was like, if I can pay my friends in a split second, why can't my employer – that's literally across the street from me – get me paid as soon as I finish a shift? 

Fast forward a bit and I'm at JPMorgan. I worked on the banking side, focused on payments companies. I saw what Uber was doing with Uber Money, giving debit cards to all of their drivers. As soon as they finished the ride, they could get the money that they earn. I was like, damn, okay, we need to bring this concept to the entire United States, and  ideally, make it completely free for all of customers.

Clair’s distribution strategy

We have a very special distribution strategy at Clair – we actually embed within workforce management and payroll systems. For the first two and a half years, we never sold directly to an employer. We just put a button in the HR tech system. 

What has happened is larger and larger businesses just knocked on our doors. As the business grew, we passed 7000 active businesses now. We have over 10,000 in the system. Larger businesses came to us and we started distributing directly to employers. We haven't gotten into the business of going direct to employees, because that's a data problem – you don't know if people worked or not. You can't really offer wage advances for free at that point.

Vision for full-service frontline bank

I think the vision has always been since day one that we're building the best bank for hourly workers. Clair is not a bank, the bank is Pathward. I know you've met them in the past. People will sign up for a new digital bank if they can have a feature that doesn't exist – being able to clock out and get your money is one. 

We wanted to build the app in a way that helps them save. Because first of all, we don't make money when people take wage advances –  we lose money because we put that on our own P&L. It's kind of a free thing we give at the entrance. People come with a need, but they want to stay for financial freedom, financial stability, and the ability to budget. 

Getting customers to stick around for more than EWA

I'll take some of the user testimonials that we get. The average customer banks at a community bank, locally. We're in all 50 states now. They've usually inherited that bank that they are with from their parents or from their community. And suddenly, in their place of work, they sign up for Clair. And what they see within the application is they now have access to features they've never had access to before. 

I'll give you one example, ATMs. People still like cash. It's so prevalent in many parts of our lives, so we have an ATM map which literally looks like Google Maps, where they can see based on their location, which free ATM is the closest. There's 40,000 across the country. So we have the largest network possible. And all of these ATMs are free. The second thing is we have a high interest savings account. So they can also put money aside, and for a lot of people, earning 2% to 4% is not nothing. They have the ability to move money both instantly and also through ACH rails. And they can do all of that from the app. 

And then finally, we also built a way to print checks, because a lot of people still pay rent with checks. So you can literally do it from the app, and we will mail a check. All of these features, once you start using them, it's very hard to go away and go back to your traditional bank that doesn't give you all of this.

Passion around solving this problem

I felt like if you can start at a place where people are really in need of something, then you can bring them in in an easy way. And therefore you can build a really category-defining company. The reason why I started this company was because I couldn't stop talking about it. One of my bosses at JPMorgan retired at the same time I was thinking of starting Clair. I would ask him for coffee to get some advice, and he said, Look, we need to stop getting coffee here. I'm going to give you money and go do your thing. He's our first investor, and he was on the advisory board early on.

Why don’t banks get into EWA?

We have  what we call a moat, a kind of defensive mechanism for the business. You can't just give wage advances to people on the street, because you don't know if they worked or not. Whether they clocked in and out –  you don't know their salary. And so the reason why Chase or Bank of America cannot just start giving wage advances is because they need to go and partner with workforce management and payroll companies to begin. That takes time. 

We bring over deposits. So we love the fact that we have this amazing channel – we want to be able to capture it for a partner bank like Pathward. We are always open and we talk to Pathward a lot about the future of wage advance and banking for hourly workers. We want to adapt the business model as we go. But right now, capturing the paycheck is immensely valuable.

Recent fundraising

We raised a total of $45 million since the beginning of Clair – $25 million was in the last round. Pathward also allocated $150 million for the consumer lending program. We're really proud of that, because in a market where there's been a lot of pull out of consumer fintech, we've seen an acceleration in our growth and also in our funding.

New product

We recently launched a really cool product called Clair for Employers. So that really allows employers to easily – in less than five minutes – sign up for Clair, so they can enable it for all of their employees. It was a lot of work. So we're very excited about it. 

Number two is we're developing a lot of and doing a lot of research around embedding even more within high tech workforce management and payroll companies. And what that basically means is to create an API for customers to build the equivalent of Clair. And so we're really working closely with them and with a partner bank to figure out what that product looks like, because I really see a separation between us owning the banking experience of the consumer end to end, and then leveraging all of the technology we have in the background, and also the regulatory compliance framework, and offering that as an API to high tech HR systems. Between these two things, that's where most of the money is going.