HRchat Interview with Nico Simko: What If Tech Could Give Hourly Workers Flexibility to Get Paid Sooner?
Almost 60% of workers in the United States are paid at hourly rates and nearly 69% of Americans would experience financial difficulty if their paychecks were delayed for a week. But what if tech could give hourly workers the flexibility to receive their pay sooner? This would allow them to circumvent high-interest payday loans just to make ends meet during these tough economic times.
I recently got a chance to speak with Nico Simko, CEO and co-founder of social-impact fintech Clair, which is championing this revolution. Here’s what Nico had to say..
Bill: Can you walk us through your journey from JP Morgan to founding Clair?
Nico: During my time working at J.P. Morgan, I saw the rise of many disruptions in the B2B payment space. One of the big ones was how Uber introduced Uber money, a debit card that was created by Uber to pay drivers instantaneously as they finished every ride. They did this for two reasons: to attract drivers and to retain them. I asked myself why did Uber feel the need to introduce this to their drivers and why were drivers so eager to sign up?
On the driver’s side, I found that 8 in 10 Americans live paycheck to paycheck and half of Americans have less than $1,000 in their bank account. It’s hard for these drivers to match their income with their bills, so this income smoothing makes a world of a difference. Uber recognized this and successfully deployed it to all their drivers. Now they’re reaping benefits from their drivers’ financial well-being.
That’s when I had my “aha” moment. It’s not just Uber drivers that have this need, it’s the vast majority of America’s 80 million hourly workers. This income smoothing is just the beginning of a long process of disruption in the payroll space that happened to start with the gig economy. We founded Clair to bring this same benefit to everyone else: mom and pop stores, restaurants, retail, manufacturing plants — they should all have access to the equivalent of Uber money.
Bill: What is Clair’s goal with Instant Pay?
Nico: Paying people in real-time comes with a massive set of responsibilities. Even if workers have access to their paychecks every day, they still need to have money at the end of the month to pay their rent and bills. Instant Pay is designed to smooth out income so our users don’t have to take extreme measures when they get hit with an unexpected expense. Our mission is to bring them into a holistic financial system so they have complete access to the tools to control their finances and that includes helping them save more and smarter. Every user on Clair not only gets a spending account but also open a savings account. This makes budgeting really simple since they only leave what’s “acceptable for them to spend” in their spending account. We are also continuously working on our automatic savings features so consumers are not left hanging at the end of the month.
Bill: Why is Instant Pay important to America’s workers?
Nico: A lot of bills simply don’t line up with payday. Hourly workers have electricity bills, phone bills, and rent due on the 20th of the month, but they’re waiting until the 30th to get paid. Instant Pay allows them to access a portion of their earned wages to manage their expenses without pushing them into taking expensive loans.
Bill: Why wouldn’t workers just use a credit card to smooth out their income?
Nico: A lot of these workers — including the ones who are even eligible — are scared of credit cards. They don’t want to risk maxing out the card and piling on debt. They look for pay advances or similar solutions to smooth out their income.
Bill: Other companies in the Earned Wage Access space target individual employees and businesses. Why does Clair partner with workforce management companies instead?
Nico: The reason we’re doing it differently is because we want to provide a no-cost wage advance product to employees. If anyone’s going to do that, they have to get the cost of capital and risk of repayment as low as possible. We have real-time direct deposit data so we know we’ll receive repayment. None of this is feasible going direct-to-consumer and these are the things that minimize our risk of repayment.
Some companies are going direct-to-employer. While most employers are excited about it, they don’t want to go through the hassle of integrating it. By going through workforce management or HCM companies — payroll providers, time and attendance providers, scheduling systems — we have prime coverage since we offer it under their brand and integrate within their existing client set.
Bill: Why would HCMs be interested in an embedded FinTech solution?
Nico: It gives them the differentiation they need without requiring each firm to spend years (and millions of dollars) developing the tech themselves. Their partner businesses still get all the benefits — the lower turnover, the higher retention, the employer of choice branding — without having to face the headache of tech development. We also offer them a revenue share so they can increase their earnings. Embedded FinTech simply works out to be a winning strategy for HCMs.
Bill: Are Clair’s wage advances really free?
Nico: Yes. Almost every single one of our competitors charges transaction, monthly or tip fees, but we do not. If an employee needs an advance it’s because they’re in need of cash. In our view, it’s predatory to charge any fees for a wage advance. For example, a $100 advance 5 days before payday with a $5 monthly fee for the service, equals 365% effective APR. That’s as expensive as a payday loan.
Bill: How does Clair make money?
Nico: We bring our users into a banking ecosystem so we can generate revenues on already embedded solutions. For example, every single one of our users receives a Mastercard branded debit card. Every time an employee uses their card to grocery shopping, the grocery store pays Mastercard a fee and we get a share of that. We can generate revenues without charging the employee, the employer, or our partner HCMs.
Bill: What feedback has Clair heard so far?
Nico: Talking to our customers and our active users we’ve found it’s a total game-changer. They say they feel they’re in control of their finances; they love that the money is actually there but separated into an emergency account; they think about their earned wage account, which is a sub-account that they have in the Clair ecosystem as a safety net that is instantly available. They sleep better at night. One user said that we’re the “Venmo of payroll.”
Bill: Where do you see this going in the next three to five years?
Nico: I believe we’re on the brink of a momentous change in payroll. The two-week pay cycle is arbitrary. It’s only there because, before, the technology wasn’t there to enable managers to run payroll more regularly and corporate treasurers need their account payable days to be as extended as possible. This is a huge market with different distribution strategies. Right now, less than 10% of employees have access to a product like this, we’re expecting close to 70% or 80% of employees will within the next five years.
For more information, visit getclair.com
About Nico Simko
Nico manages Clair’s overall strategic direction and its relationships with its shareholders and customers. Prior to co-founding Clair, he was at J.P. Morgan, leading the M&A due diligence process on a broad range of payments companies for the firm’s Wholesale Payments division. He managed M&A, investment and partnerships due diligence on 10+ payments FinTechs worth over $25 billion. Originally from Switzerland and Argentina, Nico holds a B.A in Economics from Harvard University.
For more information, visit getclair.com