Despite the so-called Great Resignation, wages have not risen as dramatically as some economists had expected. About 41% of workers recently were investigated from Willis Towers Watson say they live paycheck to paycheck, while the Bureau of Economic Advisers reports that personal savings rates arrived a seven-year low in April — reflecting the dire financial situation many workers are in.
Tate Hackert, the CEO of Calgary-based ZayZoon, argues that inflexible pay schedules are a major contributor to inequality. That’s one of the reasons he founded ZayZoon, he says — so that workers can access payments when bills are due, rather than on a fixed schedule.
To grow the business, ZayZoon today closed a $12.5 million funding round led by Carpe Diem Investments and Alpenglow Capital with participation from InterGen Capital, Prairie Merchant Corporation and several angel investors. Along with a $13 million loan from ATB Financial, the proceeds bring ZayZoon’s total raised capital to date to $25 million.
“Saving every penny I made, at age 16, I provided mortgage financing to a family friend in exchange for interest payments,” Hackert told TechCrunch in an email interview. “The same patterns emerged — people with relevant [good] incomes that needed a small amount of capital for a short period of time to get by… I sought to create a product that could help workers in their most vulnerable moments while remaining socially responsible and true to the mission of improving their overall finances health.”
ZayZoon’s platform allows small and medium businesses to implement what is known as an Earned Wage Access (EWA) program. EWA gives employees access to some of their accrued wages before the end of their pay cycle. Employees still receive their full salary at the end of each cycle. However, advances made are deducted from the direct deposit account.
ZayZoon funds early wage requests to mitigate employer risk. The service is free for companies to use, but ZayZoon charges employees a $5 fee to choose how much of their paychecks they’d like to access (up to $200). Companies can choose — but are not required — to subsidize the benefit.
Funding requests are disbursed “within minutes” to employee accounts, or employees can sign up for a ZayZoon-branded Visa card that works like a prepaid debit card. Whether they decide to go the prepaid route or not, employees can link ZayZoon to their bank accounts for spending information in addition to overdraft alerts and minimum account balance charges.
“Employers assume that implementing an EWA program requires a huge amount of effort, but ZayZoon can fully activate a business in less than 1 hour, with the majority taking less than a few minutes,” said Hackert. “Over 3,000 businesses offer ZayZoon to their staff today… Depending on the industry and employee demographics, it is typical for a business opening ZayZoon to have 25% to 45% of their workforce regularly accessing the ZayZoon”.
ZayZoon claims Sonic, McDonald’s, Domino’s and Hilton franchisees are among its clients.
ZayZoon is part of a huge industry, for sure, with the research company Aite-Novarica Group appreciating that EWA providers transferred around $9.5 billion in fees in 2020. India’s Refyne raised $82 million to do so in January, while platforms like Branch, DailyPay and Even have secured hundreds of millions of dollars for the services their EWA.
But despite the VC cash and endorsements from name brands like Uber, Lyft and Walmart, EWA is subject to increased scrutiny from regulators, including the US Consumer Financial Protection Bureau (CFPB) and the California Department of Economic Protection and Innovation. For example, in New Jersey, recently enacted rules require EWA providers to verify a client’s income before sending them an advance payment and obtain an employee’s consent before obtaining employee information from employers.
Image Credits: ZayZoon
Some consumer groups argue that EWA programs should be classified as loans under the U.S. Truth in Lending Act, which provides protections such as requiring lenders to give advance notice before raising certain fees. The groups argue that some EWA programs can force users into overdrafts, effectively charging interest through fees.
A fee of $5 per pay period may not sound like much, but it can add up, especially for a low-income worker — and the consequences can be devastating. Just $100 less in savings could make families more likely to pursue predatory lending and skip utility bill payments, a 2020 study shown? one is appreciated One in five US families has less than two weeks of liquid savings.
Hackert is making every effort to distance ZayZoon from the “predatory” EWA programs, positioning it as a welcome alternative to late bill payments, overdraft fees, and payday loans. Users are under no legal obligation to pay ZayZoon and ZayZoon will not take action to collect payment, but users who do not pay will be restricted from accessing the service in the future. At the same time, Hackert suggests that ZayZoon can protect businesses — especially smaller, independent businesses — from employees who would otherwise steal from the coffers to make ends meet.
“ZayZoon is unique in the competitive landscape because we specifically cater to small and medium-sized businesses,” said Hackert. “ZayZoon specifically sought to serve the underserved… Financial stress is a major contributor to lost productivity and health issues.”
However, it remains unclear whether EWA programs are net positive for companies. Taking Walmart as an example, the retail giant had high hopes of boosting retention by giving employees access to earned wages early. Instead, it found that workers using the early salary access service tended to cut it faster.
It’s not just businesses that could have complaints. Some employees may object to the ways in which ZayZoon shares their personal information. For example, the company has a partnership with Prizeout to run ZayZoon Boost, an optional service that pays wages in the form of gas, grocery and retail gift cards. ZayZoon advertises Boost as a way to earn gift cards that are worth more than early salary payments. However, in its privacy policy, ZayZoon makes it clear that users who participate in Boost agree to transfer personal and financial information to Prizeout, including their name, date of birth, gender and address.
Beyond Boost, ZayZoon reserves the right to use Any the user’s data to conduct research, contests, surveys and sweepstakes and use it for marketing and promotions. Hackert notes that employees can email ZayZoon customer support to request that their data be deleted, but there is no in-app mechanism to make this easy.
“Businesses are interested in ZayZoon because we significantly improve their employee well-being, productivity, retention and recruitment efforts,” said Hackert. “ZayZoon is actively seeking to collaborate [regulatory] it makes efforts and supports a well-thought-out setup, as ambiguity is never a good thing. There are new market entrants who unfortunately exploit this ambiguity to the detriment of the consumer — charging high fees, operating in ways that are not transparent, and enforcing the privacy of a consumer’s data.”
With the proceeds from the equity and loan round, ZayZoon plans to invest in general product development and market expansion. When asked if ZayZoon plans to hire in the face of the global economic slowdown, Hackert responded positively, saying he aims to increase the number of employees from 60 to 85 by the end of the year.
