Despite the so-called Great Resignation, wages have not risen as dramatically as some economists had expected. About 41% of employees recently interrogated by Willis Towers Watson say they live paycheck to paycheck, while the Bureau of Economic Advisers reports that personal savings rates reaches a seven-year low in April – a reflection of the dire financial situation in which many employees find themselves.
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 employees can access their paychecks when their bills are due rather than on a set schedule.
To grow the business, ZayZoon today closed a $12.5 million financing round co-led by Carpe Diem Investments and Alpenglow Capital with participation from InterGen Capital, Prairie Merchant Corporation and several investors. In addition to a $13 million loan from ATB Financial, the proceeds bring ZayZoon’s total capital raised to date to $25 million.
“Saving every penny I made, at age 16 I was providing mortgage financing to a family friend in exchange for interest payments,” Hackert told londonbusinessblog.com in an email interview. “The same patterns emerged – people with relatively [good] income earners that needed a small amount of capital for a short period of time to get by… I tried to create a product that could help workers in their most vulnerable moments, while remaining socially responsible and true to a mission to improve their overall financial health. “
ZayZoon’s platform enables small and medium-sized businesses to implement an EWA (Earned Loon Access) program. EWA gives employees access to a portion of their accrued pay before the end of their pay cycle. Employees still receive full pay at the end of each cycle. However, the claims made are deducted from the direct deposit account.
ZayZoon itself finances early wage applications to limit the risk on the employer’s side. The service is free for businesses, but ZayZoon charges employees a $5 fee to choose how much of their pay to use (up to $200). Companies can choose – but are not obliged – to subsidize the benefit.
Funding requests are paid into employee accounts “within minutes,” or employees can sign up for a ZayZoon-branded Visa card that acts as a prepaid debit card. Whether or not they decide to go the prepaid route, employees can link ZayZoon to their bank accounts for spending visibility, in addition to overdraft alerts and minimum account balance fees.
“Employers assume that implementing an EWA program takes tremendous effort, but ZayZoon can fully activate a business in less than 1 hour, with the majority taking less than a few minutes,” Hackert said. “More than 3,000 companies today offer their staff ZayZoon… Depending on industry and employee demographics, it is typical for a company deploying ZayZoon that 25% to 45% of their staff have regular access to ZayZoon.”
ZayZoon claims that Sonic, McDonald’s, Domino’s and Hilton franchisees are among its customers.
ZayZoon is certainly part of a huge industry, with research firm Aite-Novarica Group to estimate that EWA providers moved about $9.5 billion in wages in 2020. India’s Refyne raised $82 million in January to do so, while platforms such as Branch, DailyPay and Even have secured hundreds of millions of dollars for their EWA services.
But despite VC cash and recommendations from well-known brands like Uber, Lyft, and Walmart, EWA is under close scrutiny from regulators, including the U.S. Consumer Financial Protection Bureau (CFPB) and the California Department of Financial Protection and Innovation. In New Jersey, for example, recently introduced rules require EWA providers to confirm a client’s earned income before sending an advance and obtain an employee’s consent before getting information about employees from employers.
Some consumer groups argue that EWA programs should be classified as loans under the US Truth in Lending Act, which provides protections such as requiring lenders to provide advance notice before increasing certain fees. The groups argue that some EWA programs can force users into overdraft while effectively charging interest through fees.
A $5 fee per pay period may not sound like much, but it can add up, especially for a low-income employee — and the consequences can be disastrous. Just $100 less in savings could make families more likely to pursue predatory loans and forgo payments on utility bills, a 2020 study showed; a estimated one in five US households has less than two weeks of cash.
Hackert goes to great lengths to distance ZayZoon from “predatory” EWA programs, instead positioning it as a welcome alternative to late bill payments, overdrafts, and payday loans. Users are under no legal obligation to refund ZayZoon and ZayZoon will not take any action to collect payments, but non-paying users will not be able to access the service in the future. At the same time, Hackert suggests that ZayZoon can protect companies – especially smaller, independent businesses – of employees who would otherwise steal from the register to make ends meet.
“ZayZoon is special in the competitive landscape because we specifically target small and medium-sized businesses,” said Hackert. “ZayZoon was specifically out to help the underprivileged…Financial stress is a major contributor to lost productivity and health problems.”
However, it remains unclear whether EWA programs are net positive for businesses. Taking Walmart as an example, the retail giant had high hopes for boosting retention by giving employees early access to wages earned. Instead, it found that employees using the early access wage service tended to quit faster.
Beyond Boost, ZayZoon retains the right to use each user data to conduct research, contests, surveys and sweepstakes and use it for marketing and promotions. Hackert notes that employees can email ZayZoon customer service to have their data removed, but there is no in-app mechanism to make this easy.
“Companies care about ZayZoon because we significantly improve the wellbeing, productivity, retention and recruitment of their employees,” said Hackert. “ZayZoon is actively looking for cooperation [regulatory] efforts and is in favor of well-considered regulation, because ambiguity is never good. Unfortunately, there are market entrants who take advantage of this ambiguity to the detriment of consumers: charging high fees, operating in ways that are not transparent, and imposing a consumer’s data privacy.”
With the proceeds from the equity and debt round, ZayZoon plans to invest in general product development and market expansion. When asked if ZayZoon plans to hire people in light of the global economic slowdown, Hackert replied in the affirmative, saying he aims to grow the workforce from 60 to 85 by the end of the year.