There’s a rising availability of earned wage access solutions. As more workers engage in the gig economy, fintech and payment solutions are emerging that help people access their wages as they earn them, instead of waiting for a monthly or bi-weekly pay cycle.
Payfare is one of those companies. Fresh off an IPO in Toronto in March of this year, the company works with platforms like Uber, Lyft, and Doordash to enable their workers to get paid. Payfare CEO Marco Margiotta joins us on the podcast to discuss the move to go public and what changes that presented to management. Marco discusses trends in gig economy payments and earned wage access. Lastly, we look ahead to see where earned wage access matures to and how Payfare’s products will continue to support workers.
Marco Margiotta is my guest today on the Tearsheet Podcast.
Our company specializes in providing gig economy workers digital banking solutions that provide instant access to their earned wages.. We have clients such as Uber, Lyft, and DoorDash.
After a few successful startups, the two other co-founders of Payfare, Keith McKenzie and Ryan Deslippe, approached me with this crazy idea of funding gig workers. In the backseat of an Uber, we found out pretty quickly that a lot of drivers have a pain point, which was they were formerly taxi drivers that love the fact that they used to get paid cash, because they can take that cash and refill their tank and keep going. Unfortunately, when rideshare first started, there were no options for gig workers. When you’re spending money daily, but waiting weekly to get paid for it, it becomes a challenge. That’s when the light bulb went off, and we decided to do something about it.
How it works
At a very high level, Payfare works slightly different for each client of ours. But at its core, we do a couple of things. One is we provide that gig worker with a digital bank account. That digital bank account acts and feels like any traditional bank account you would have in your wallet. But it actually has a few different elements. And the most important element that really differentiates it from a standard bank account is we partner at the platform level, like with DoorDash, for example.
We make the offering of a digital bank account solution available to a platform’s users. And so at different frequencies, one platform might decide to pay its users daily — another platform might decide to pay after each task or each delivery. Inevitably, we’re speeding up the access to the earned wages that they’ve earned and we’re providing them with a free digital bank account, which really sets them up to have an independent view of all their gig worker activity.
Partnering with platforms
Initially, it took quite a while [to partner with gig platforms] because as we were pioneering the space alongside some of those larger platforms, it was all pretty innovative. And so with that came a lot of decision points about how certain things would work. We’ve built alongside those platforms. Right now, we can probably complete the sales cycle in three to four months, depending on how quickly the platform comes in alongside us.
It’s not a walk in the park. Partnering with the likes of the clients that we have was more about hand holding and showing them exactly what they needed, even before they knew they needed it. Fortunately for us, one of the larger players in the space really felt like this was a very innovative need that wasn’t being answered or addressed. So we did that. And with that came traction with other competitors in the space saying, ‘Well, you know, if that works great, then we also want that.’ Because the reality was once one big platform did it, as a gig worker, you prefer one platform versus the other. And so we built the path, and then it was quickly followed.
With that being said, the initial turnaround, launch, and implementation with our initial client took about a year for that sales cycle to play out. And then as things became more familiar, and things started becoming more fine tuned and refined, the sales cycle diminished.
The mechanics of earned wage access
For the most part, we prefer the platform that we partner with to provide the flow. In that regard, there’s no float or interest on capital — so less risk, less time value of money. We can actually pass that back to the user. That’s what makes it completely free. That’s our preferred choice. And so for the most part, all of our clients would pre-fund those accounts. We would have a dedicated trust account where those funds would reside with the sole purpose of using those funds to advance earnings that have been made by those users. Only in certain instances have we provided the flow. But our preferred path that over 90 percent of our business works off of — is the platform themselves pre-funding those accounts.
Take North America. Any driver that’s working around the clock is really burning through a tank of gas easily in a day, if they’re doing it on a full time basis. And so it’s very difficult for them to float that for as many as 10 days before they get their first paycheck. We’ve had some statistics earlier on that would show us exactly what those pain points were. Driver supply hours was the key metric on the rideshare side — it would have been boosted north of 20 percent had this service being offered. And so it’s really relevant.
It has become very clear how having an instant payout solution to the gig worker sets the platform apart from others. It’s a great retention tool, but it’s also a great attraction tool, right? You don’t have to worry about where your next funds are coming from to keep your business going.
The debate continues about gig workers being independent contractors or employees — in our view, they’re entrepreneurs, and they need the tools like any other entrepreneur needs to get their business going. This provides them with the launchpad to make that capital gap go away.
Taking a fintech public
The decision for us to go public was very clear. It wasn’t easy raising money here in Canada. It’s not like experiences that I’ve had in the US, where there’s a lot more speculative capital and a greater VC market (it just felt like in the US it’s always been easier to raise money). But having said that, because we’re based here in Canada, I was fortunate enough to keep landing myself in front of different investors through word of mouth. And that word of mouth led us to have 300 plus investors by the time we went public. They were all accredited investors — it was almost one check at a time. And miraculously, it got us to the level that we needed to get some institutional interest.
We put some traction behind us with the clients we had before we went public. And it all seemed to work out. We did look at some other paths — we had opportunities to be acquired, which we put to the side because we felt that it was early innings, and we could have a lot more growth ahead of us. But the reality is, once you take in that many investors the pressure mounts, and so it just felt like this would have been the only way to accommodate those who want to go along for the ride for the next set of exponential growth. So going public was the kind of the solution that worked for the very large shareholder base that we had. It was a no brainer on our side.
Levers in the business
In the gig space, there’s a massive amount of growth to be had, especially over the next few years, where by 2023, it’s expected half the entire workforce in the US would be gig economy, or at least independent contractor related. We’ve done extraordinarily well targeting the largest platforms in the world — with major traction behind us, there’s tons of growth even inherently in the clients. The sum of all the small parts actually equates to a very sizeable market: $473 billion within the next year or two. We’re at a fraction of that when we consider the clients we have. And so there’s a lot of other areas within the gig space, specifically rideshare and delivery, let alone all the other facets of what makes up the gig economy that we can target.
We’re really marching down the path of coming up with a solution that provides any gig worker, irrespective of which platform they’re on, with the capability of having this functionality. That’s the next phase and iteration of what we are doing.
Over the next couple of quarters, we plan on developing an offering that would have any platform, irrespective of how big or small they are, be able to provide us with the data we would need to validate that a worker has earned X amount of money, and then make that available to them. There’s kind of a two-sided approach here. One would be direct to consumer or direct to gig worker, where we would aggregate each user on a one-off basis, providing them with what we would refer to as our super app. With that function, as we aggregate those users, we’ll be able to identify which platforms a lot of that workforce is coming from.
And then on the flip side, we can approach that workforce and say, ‘Look, 10,000 of your users are now on our platform, how would you like to make instant access to earnings available for those users?’ It’s a two-prong approach, where you’re aggregating all the smaller gig platforms, but also addressing the banking needs of any gig worker out there. It’s tackling them from both angles.
More financial services
We have a direct pulse on a lot of the workforce in the gig economy space, and we’re always listening. It’s very clear to us through all the engagements we’ve had with those users that there are way more needs than just providing a simple bank account. Gig workers have specific needs, such as tax reporting and assistance, cashback and loyalty rewards. Microlending would be another area that we would see a huge demand for. There’s a ton of things we’d want to do around that. A lot of that will be rolled out with the super app we’ll be creating and rolling out closer to the end of the year.