Hi guys, welcome to the Fintech Coffee Break. I’m your host, Isabelle Castro. This week, I shared my coffee break with Nico Simko, CEO and founder of Clair, an earned wage access and banking app.
Now, I’ve covered earned wage access before, but Claire is a different player within the space. The company approaches earned wage access like a loan, also offering employees other banking services. I asked Nico about this approach and why he went through the long, arduous process to be able to do this.
I also asked him his opinion on regulations rolling out in the space and where he expects it to develop going forward.
Isabelle Castro 0:42
Hey, Nico, how are you today?
Nico Simko 0:45
Good. How are you?
Isabelle Castro 0:47
I’m very good. Thank you. I’m really happy to have you on the show. I’m looking forward to this. Thank you. Me too, as well. So to begin with, what gets you up in the morning, Nico?
Nico Simko 0:59
Well, what gets me up in the morning, especially to go to work is to help America’s workforce feel financially free. Okay,
Isabelle Castro 1:06
that’s, that’s a good reason to get you up. And you founded. So you founded Clair. Tell me, let’s start by you telling me kind of what brought you to founding Clair? And then I’ll focus on the whole, Clair bit.
Nico Simko 1:24
Yeah, of course. So I’m originally from Argentina, and Switzerland, which basically means the way I got myself into the US was through college. So I came as a student, during that time, I had to work an hourly job. Some of it is to pay bills for university, but also to have a bit more pocket money to enjoy University. And during that time, I got paid with a physical check. And it was let’s put it that way, was not the simplest Pay Process. And I was thinking why. And you have Venmo and all these, like Instant Pay apps to pay your friends, but you cannot get your paycheck immediately as soon as you clock out of work. And so as a student, I didn’t do much about it. But that idea kind of stuck with me. I ended up working at JPMorgan after university for a few years. And during that time, I saw what the what would say the the ride sharing apps did, which is they start paying their drivers immediately after every ride. And, and and the drivers loved it. And so I was like, can you take that concept and bring it to the rest of the economy? And that’s how Clair started.
Isabelle Castro 2:30
Okay, okay, so was it straight off at uni? Or?
Nico Simko 2:35
It was about four and a half years after uni? I did work for a few years at a big bank.
Isabelle Castro 2:40
Okay. Okay, cool. And so why earned wage access? I mean, you’ve kind of already touched on it, but I want you to go deeper.
Nico Simko 2:50
Yeah, whether it was me when I was a student, or, you know, most Americans, you know, didn’t have the ability to cover an unexpected expense. You know, more than 50% of people don’t have, I think, between $400 to $1,000, just in case. And ultimately, those the solutions that are there in order to get money right now are often very, very, very expensive. Think about payday loans, think about, you know, paying oftentimes above 20% interest on on your credit card over four year in order to get money. And so could you actually consumers borrowing against themselves, and by themselves, I mean, literally the money that they’ve earned, but not yet received. And, and that I think is what, you know, gets me really, really excited is being able to solve that societal problem through technology and financial engineering.
Isabelle Castro 3:49
How does the Clair solution actually work? Like, there’s quite a few bits to it.
Nico Simko 3:56
Exactly. So our goal was basically to create a product that would make consumers not have to pay even a penny for wage advances. So they could take as many events as they want, always for free and always instant. And the way to do that is you have to sign them up for a product that does generate revenue. And and so the way we created that was to sign them up for a new digital bank. And the kind of the contract we have with the consumer is if you’re willing to put at least a portion of your paychecks, right, so every time you get paid, your paychecks go into this new digital bank called Clair. In return, we’re going to give you proportional to how much putting in the bank you know your wages in real time. And and then the big bet we were making was because they put their paycheck in that bank and we give them a debit card they would spend on that debit card, and when they spend on the debit card, we then generate something called Durbin exempt interchange, and that is enough to cover all the other costs. And so that’s a little bit what the consumer has to go through in order to sign up for us
Isabelle Castro 4:59
Okay, okay, that that makes so much sense. And you can see kind of how that would scale and how that works for you, as well as for the consumer, right. And in not a dodgy sense, either. It’s like, quite straightforward. So what has the impact of your solution being? I imagine you chat to kind of like your customers and people who are using this? Have you noticed what the impact has been?
Nico Simko 5:29
Of course, you know, we’ve crossed $100 million in deposits, as a company we’ve been live with about, you know, there’s at least one active user close to 6000 businesses now in the country. There is, you know, over I would say, 200,000 people that have got into our application. And so really, the impact at the macro level is that the impact at the micro level is, we’ve I think, under our math, we’ve saved consumers close to $7 million in fees that they would have had to pay in order to get the exact same financial services as they would have gone through us. And so that’s a huge, you know, level of social impact. I think the other thing is, the impact we’ve had is, typically people don’t love their banks. And for us, we have an NPS score that is it oscillates between 65 and 71. And for anybody, you know, who knows what that experience score is like, that’s, honestly as high as it gets in financial services. And so overall, we’ve just made people feel happier with their bank. And also a lot less financially stressed, because in case they do need $100, $200, $300, right before their their paycheck lens, they have a solution to get there. Okay.
Isabelle Castro 6:45
And so the fees that you mentioned, is that normally from what’s that normally from where if they weren’t using Clair, what’s those fees?
Nico Simko 6:54
Yeah, usually from we basically took the average of fees that people would pay to get an advance, we took the average of fees that people would, you know, would would have to pay in order to bank, especially people who are paycheck to paycheck, there’s things like inactivity fees, there’s things like overdraft fees, those are all very, very typical banks. And so we said, well, what if we took the average of what those fees were, and we were charging them for, for that? How much money you know, would we be making and therefore we’re saving for the consumer. And so that’s the math that we’re doing on our side. Okay,
Isabelle Castro 7:25
so these people who are kind of a lot of them are paycheck to paycheck. I mean, you read a lot of reports that so many are living paycheck to paycheck, like these kinds of fees, I guess they can make quite a big difference to people’s lives and taking them away. Also makes a lot of difference. Right?
Speaker 2 7:46
Exactly like the I was talking to a customer yesterday. And she was telling me that while rent was due for I think most of the world last weekend, or like about a week ago. And, and she was like, Look, I had an issue that my my rent was due on the first. But my paycheck was actually this month going live on the second. And if I didn’t get my my rent paid on the first I would have a $75 late fee. And that was just because my paycheck would be a day late. And so like literally Clair saved me because I needed to flex in order. In her case, it was $400. I just bought it for myself, they did back immediately the next day, but I save $75. And for me that’s that’s that’s the difference we’re creating here. And that’s the kind of like financial flexibility, financial freedom we’re creating for consumers, because again, they’re just boring against themselves, right? They’re boring against their own paycheck in the background, of course, they’re taking a real advanced, you need to pay it back, all of it is automated. But with the consumer, the user experience is really they’re boring against themselves.
Isabelle Castro 8:47
Yeah, I wanted to go into this a little bit more. Because I mean, a lot of people in the earned wage access space, they don’t approach it, like you guys do, kind of the understanding that I get is that you approach it like a loan. And it is like you do all the underwriting and all everything that needs to be done for a loan, you do that. Tell me about that. What what was behind that decision?
Nico Simko 9:15
Yeah, it’s a great question. So we if you’re what’s happening in the background? Before, you know, I go into why we think this is this is this is a form of lending. Is, is basically somebody needs to advance the funds to the consumer, in order to flex the wages, right? It’s gonna be very complicated for the employers to do that. Because, honestly, it’s operationally a nightmare. So you need kind of a third party to advance the funds. So that’s what we do. So because you’re advancing money to consumers with the expectation of getting paid back our stance has been there will be maybe not a majority, but many, many states that will believe that this is a form of consumer credit, right? You’re literally advancing credit to people getting paid back. There’s no And then there’s, there’s, there’s, if you’re going to do that there’s a lot of licences you need to go ahead and get, well, most providers in the market, we’re have not kind of, I would say, even taking the stance of this as a form of credit, their view is like, No, this is not credit. We don’t, we don’t have to advance it, the view we had was, I personally didn’t know. And I didn’t know where all the regulators would be. So the way to protect ourselves was to go ahead and call this credit. So in the case, some states would call credit, we would be defendant. Now, that’s starting to happen, as states like Connecticut, have come out since I’ve Maryland have come out to say, Hey, this is a form of, of credit. And so we’re very happy we made that decision. But the decision was really taken with the idea that like, we want to have a product that is generational meaning like, we don’t have to kind of remove our entire back end system every three years, because some states say one thing and some states say something else, we’d rather have something that is very consistent, that can, you know, withstand any state by state law changes.
Isabelle Castro 11:03
Okay. Okay. So yeah, you’re kind of protected from that. I mean, you mentioned the regulations that are kind of rolling out in different states, some have come out and said that it’s not a credit product, it’s not a loan. What’s your opinion on this?
Nico Simko 11:24
Well, I think the reason, well, let’s understand why people don’t think it’s, it’s a loan. It’s because if you want to, it’s easier to operate without having to get licences, right, it took us two and a half years to do it, you need to get a national bank on board, we’re not the one advancing the money. It’s a lot of work to do it as a loan. So it’s easier to operate. First and foremost, we are calling it alone. Secondly, like, I think that it’s also from, from our perspective, the most consistent way to attract and retain customers, whether that’s employers and employees to be consistent with the book of law that is in front of us, which is there’s, you know, the Truth in Lending Act was basically created in the 70s, by National Congress, which says, Hey, if you’re advancing money to people, expectation, we’re getting paid back, here’s a list of guidelines, which ended up being reg z, that needs to be followed. Again, it’s easier as a company not to have to follow any of these rules. But what we’ve decided to do was like, hey, with additional funding, we’re able to do this the right way. And and that’s why I think, like, the argument to be made that, you know, this is a form of credit is, I think, a little bit more logical compared to every credit product out there than saying this is this is not credit. But understand from a company’s perspective, why you would do it, the easier route, it’s easier if you’re less work, you have less expenses, and you go to market faster.
Isabelle Castro 12:48
Have you have you kind of received any, I don’t know, criticism or anything like that, for going in that way and not going the same way as other EWA providers.
Nico Simko 12:59
I mean, I think that states and the government have been very receptive to us doing things the right way, like consumer protection agencies have come out and basically said, please call this a form of credit. Because again, you’re just advancing money to an expectation, we’re getting paid back, therefore, this is credit. And there’s nothing wrong with it, just go and go and apply for licences, you know, or go work with a national bank. And so I think we’ve gotten a lot of like, very positive feedback. I think we’ve grown a lot as a business. Thanks to that, because larger businesses that are very sophisticated are realising, hey, you guys are actually advancing money to people, you’re, we’re not charging fees, but in there, other players in the space, charge fees, we want to make sure you get licences. So we’ve met a lot of businesses have come to us and say we’d rather work with you because you have a national bank backing this, you’re not even the ones advancing the money you have like all of this, you know, well disclosed. And so that has helped us a lot. Now, of course, I think other providers are a little bit I would say annoyed by the fact that like we did this the right way. But I think that’s that’s the beauty of a market. Right, is that with, with the right funding with the right, you know, product process with the right research, that is how we progress as a as an industry is by, you know, maybe players who took some shortcuts having to reckon with that, and then providers who maybe took a slower start and like, it did take us two and a half years to get to this point. You know, you kind of reaping those those benefits, you know, down the line. So, so I don’t know, oh, look, a lot of states are going to be saying it’s fine not to call this credits. A lot of it also because there’s, you know, there’s there is some lobbying taking place. And so, and that’s understandable at the end of the day, all of us in this industry, to be clear, are trying to give people alternatives to payday loans. It’s just in the details, how the disclosures are done. That I think is where there’s different mentalities and different products that are being built and I just feel good about, you know, going all the way to the compliant route. and not as you know, as poss as much as possible, not trying to take any any shortcuts.
Isabelle Castro 15:07
Okay, so you’ve mentioned that this is going to kind of cover you if state regulation isn’t consistent and all that kind of stuff. Are there other things? And you’ve also mentioned that bigger companies are interested in partnering you because of the compliance? Are there any other things that have made it more easy because you’ve gone down that really long route? And gone the way that you have?
Nico Simko 15:38
Scalability? While less noise, number of times that I’ve, you know, answer the question, Hey, how is you know, this state deciding that earned wage access is this form of lending or not lending affecting you, it’s so nice to be able to say, hey, this doesn’t really affect us. Because we’ve called this funding, we’ve partnered with a national bank, like, it’s really like, I don’t wake up having to think about it. And so what are the benefits is that my team can be really focused on growth on product experience on launching better products. I think also, calling this a form of credit allows us to do potentially credit reporting, which is something we’re looking into now. But if you’re not calling it credit, how do you want to report it as a form of credit, you know, so like, I think there’s a lot of cool things we can do there. Consumers, I think after from a financial standpoint, like after making sure they have always have money, in case of emergencies, the other thing is they want a better credit score, because a better credit score in the long run gives us also better access to different types of credit, whether it’s buying a car or something else. And so we want to help consumers, not only with wage advances, that’s why we kind of open entire digital bank for them, but we want to help them save, we want to help them get better credit, we want to help them be on top of their bills. And honestly, you know, we’re losing money, whenever they take away judgments, we don’t make money off of this in our current product. And so the idea here is like, we have all the incentive for them to stay with for the bank, but not take any wage advances. And I love that about us, because that’s that really aligns us with our mission, which is make people feel financially free.
Isabelle Castro 17:11
I like that I really do. Where do you see the space in general developing over the next few months, the next years taking into account maybe regulations that have come into play.
Nico Simko 17:25
So maybe let’s talk about regulation. Let’s talk about market growth. And then maybe also, let’s talk about what I think is going to happen with players in the market. Starting with regulation, there’s going to be more and more noise, we’re just at the beginning of the wave, I think there’s going to be more federal noise, more state noise. I think everybody’s waiting for California to come out with their I would say like finalised proposal of what they’re going to be doing, that will trigger an enormous amount of states that also will like look at this. So I think that’s going to be that’s going to be next few months, if not the next year, it’s very hard to know exactly when these things are going to come out. But I think the next few months, and years are going to be with that. So that’s number one. I think in terms of market, I think we’re going to see an enormous amount of growth in this market. The reason why is because I would say I think EY did a study that it was more like between five to 10% of businesses offer, you know, earned wage access today, that means 90% of market is untapped. That means, you know, players like us are going to be able to like Greenfield acquire customers acquire tech platforms that want to offer this as a as their own solution. So I think just the pie is just gonna get pretty big. And so that brings me to my third point, which is players in the space. I think that there’s been a lot of money invested in the space, but not everybody built the right compliance, not everybody built the right go to market strategy. So I think there’s gonna be a lot of m&a going on a lot of like reconciliation in the space, I think everybody’s also estimating that this is going to happen. And so I’m really excited about it, because that with a growing pie with clarification from regulators, and I would say a lot of different players trying different strategies going to be clear what the winners are going to be. And so it’s just going to help the space overall.
Isabelle Castro 19:09
No, I agree. That’s, that’s a really well rounded response. Thank you for that. Where are you guys going to be focusing your efforts? I don’t know whether you can tell me this. Where are you be in over the next year?
Nico Simko 19:22
One word, growth for us. Look, we’re not we’re not the first players in the space. We spent years building the right infrastructure at honestly, you know, we probably are still smaller than some of the original players. It’s hard world private companies. So it’s always hard to know. But the reality for us is a soul growth like we and for that for me it’s going to be focused is like we have a lot of opportunities ahead. I’m really excited about you know, building a credit builder product for our consumers but also enabling a HR tech solutions, which is payroll companies, workforce management systems to like, kind of build their own version of a wage expense, which access solution. And the reason why is because these apps are not these old, old school time clocks, nobody cares about and they’re not like payroll systems, you’re not in every day, like I’m realising I mean, my payroll system so frequently now, because it helps me with performance management, managing time off, or, you know, it helps me with ordering some stuff for the office. And I think these, these, these, these tools are now becoming like workforce, super apps. And so I’m really excited to see how wage advanced can be something that’s embedded within those solutions with the right compliance with the right repayment flow. And at the end of the day, making it as cheap as humanly possible for consumers all the way to being free, if they’re willing to open a new bank account. Okay,
Isabelle Castro 20:46
cool. That is really, really exciting. I’m looking forward to watching your development. So in the meantime, you’ve got your last two questions, which is the first one, what’s a piece of advice you’ve been given that you would give to someone else?
Speaker 2 21:04
Yeah, my, can I make the someone else, another founder, or anyone?
Isabelle Castro 21:10
Anyone you want to? Yeah,
Nico Simko 21:14
I think there’s the same, which is, and hopefully, I’m not going to butcher it. But it’s, you can do anything you want. That you put your mind to, but you cannot do everything. And I think that’s a saying that I’ve had, you know, in my head for quite a while, which is, in order to deliver on things, in order to build something, you have to be unbelievably focused, and you have to be aware of what you’re going to say no to. And so I think my piece of advice is just like, make a conscious decision about what you really, really care about. And therefore what you do not care about and making that makes your life so much easier. But I think most people either don’t want to make a decision, it’s hard to say no want to pretend they can do everything. And I think that then bites them back a few months later. And so that’s my piece of advice. So it’s a nice
Isabelle Castro 22:01
piece of advice. Don’t spread yourself too thin. I am gonna take that piece of advice. I definitely do that. I’ll do your curveball question, which I’ve literally, I normally do them before this call. But I just did it. Like while you were talking. I’m sorry. I was listening at the same time. So if you could have a superpower, what would you choose? And why? Yeah,
Nico Simko 22:29
I would love to fly. I know, it’s completely irrelevant, probably from my day to day work. But I’m fascinated by planes. I think that planes are an absolute Marvel. I think that as humans, we went from first flight. And I think if you know, 50 years later, we’re we’re able to put people on the moon. My timeline is right. But it’s like in less than 100 years, we basically went from learning how to fly to put someone on somebody on the moon and like, I think that, you know, being able to just fly myself around, which doesn’t exist today. But in a very easy and direct way. It would be incredible. Since I kid I want to be able to do that. I don’t think I’ll figure it out one day, but I would love that superpower to exist.
Isabelle Castro 23:16
Well, I hope so too. That sounds great. And maybe it Well, you never know. Like, who knows what Tesla’s gonna bring out next year. And all the other ones you know. So how can people get a hold of you? Absolutely.
Nico Simko 23:31
So people can find me Of course on LinkedIn Nico Simko from Clair or they can just go on our website get clair.com
Isabelle Castro 23:39
Great. Okay, thank you so much for your time. I’ve really enjoyed our conversation and have a really good rest of your day.
Nico Simko 23:47
Thank you so much, Isabelle. Really appreciate it.
Isabelle Castro 23:50
As always, you can reach out and chat with me or my personal LinkedIn or Twitter @IZYCastrowrites But for access to great daily content, check out Fintech Nexus on LinkedIn, Twitter, Facebook or Instagram. You can also sign up for our daily newsletter bringing new straight to your inbox. For more fintech podcast fun, check out the website, where you can find more fascinating conversations hosted by Peter Renton. And that’s it from me. Until next time, enjoy your downtime.
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