Launch HN: Payflow (YC S21) – Allow workers to access their wages instantly

[asukhwani]

Hi HN, we are Benoît and Avi, co-founders at Payflow (https://www.payflow.es/). We’re making a better app for workers to instantly access their earned wages. We launched a year ago in Spain (where we’re based!). Anyone in Spain can try our product. Otherwise, here’s a demo video: https://www.youtube.com/watch?v=GSDlGhoFNyM.

75% of employees in Spain and Latam live paycheck to paycheck and many have no savings. They often run out of cash before payday, especially if they have an unexpected expense. This is an issue for employers too, because high employee turnover amongst low-income employees is costly. Most employee perks (e.g. health insurance, flexible benefits, snacks in the office), which are so familiar to HN, are usually reserved to white-collar workers in Latam. Said employee perks are too expensive for blue-collar employers, and more importantly are not what employees who are struggling with financial instability actually need.

Given the inequality (and wealth) of our societies, we could argue that low-wage workers ought to be making more in the first place, but in the meantime people are making what they make and often have an urgent need to access that money faster. For example, a few weeks ago, we received a call from an employee who was stuck at a gas station in the middle of nowhere. He was out of gas and out of money. We helped him activate his Payflow account so he was able to instantly stream a portion of his earned wages. This allowed him to pay for gas and to continue on the road.

Every week we receive emails from potential users (who are unable to use our app because their employer has not yet signed a contract with us) and they literally tell us “I need money”. We thought employees would use our app because it’s innovative, but they mostly use it because they really need the money. This came as a surprise to us. We knew there was a need, but we did not realise the need would be so pronounced.

We met 8 years ago at MIT and discovered a company called DailyPay that was offering on-demand pay in the USA. We thought this was really cool, but didn’t really see it working outside of the USA. 8 years down the line, we saw a couple of players pop up in Europe and realised there was an opportunity to take on-demand pay to other countries. The pandemic was the perfect time to start because demand for short-term credit spikes in a crisis. That’s when we decided to get back together in Spain and launch Payflow for Spain and Latam.

Our mobile app allows users to see and withdraw their accrued wages in real-time. Employees value our product because it’s free, private and instantaneous. It’s free because we charge employers, not workers. More on that below.

When the user makes a withdrawal, we issue a real-time payment to their bank account, so they receive the money within seconds. On the backend, we have an integration with the employer’s payroll software so we know how much should be available for them. This is the tricky part. We need to know how much they have earned and if they are still employed by their company. It is hard to gather this information: payroll systems are complex in large companies, most integrations are on-premise, the market is fragmented and it is hard to create plug and play solutions. We realised we could solve it when payroll providers started opening their APIs to third parties. We saw this as an opportunity to solve a longstanding problem using technology. In reality, things were (as usual) harder than expected because a lot of payroll software integrations still have to be done on-premise.

This is a hot market right now: there are 150+ startups worldwide working on it! The hype is recent, most of the 150+ are just getting started, less than 10 have raised $5M+ in funding. However, almost all of these startups charge employees a fee for each transaction. That makes them effectively a payday loan in disguise. By contrast, we sell our service as a true employee benefit, which the employer pays for. Our solution is completely free for employees. This is an important distinction!

Workers living from pay check to pay check have traditionally been vulnerable to exploitation, and the entire payday industry has a bad reputation because of this. We’re building on what we hope is a much better foundation by being free for the employee and selling the product to companies. Our product means that people are much less likely to go into overdraft at their bank or to take out a payday loan. Both of those solutions are extremely costly. We want to fight financial institutions who are taking money from people who don’t have any. Second, we are truly committed to financial inclusion: we have launched two more products, Learnflow (a financial education platform to allow employees to learn about how to manage their personal finances better) and Saveflow (a saving tool that allows people to set money aside because we believe that financial freedom starts with healthy saving habits). Third, numbers show that people use our main service Payflow for very small amounts ($50-70) so we are not reinventing a loan but instead helping employees cover unexpected expenses and get paid in a more flexible way. In fact, we even give employers an optional feature where they can set a cap on the % of salary that their employees can withdraw. Some employers really like this function because it ensures employees will have enough money left over at the end of the month to pay for their rent!

Building a product, as you all know, is hard! We have a long way to go, but we are passionate about what we’re building. We’d really appreciate any comments and feedback, we’d love to hear anything that can help make Payflow better. Thanks in advance!

[qnsi]

I worked at a company that was working on this. I left because of ethical reasons.

>Workers living from pay check to pay check have traditionally been vulnerable to exploitation

And the proposed solution doesn't fix that. Most of those people don't have a problem with unexpected expense once a year. They don't budget and are short on cash every month. So now imagine Bob needs money halfway through the month. He takes out 50% of his pay. He uses is for immediate needs and than has to live at 50% of his pay for the next 1.5 month.

How is his situation any better?

Also I can 100% guarantee you, most people working in this space are working on loans for those users. They don't plan to stay as just company benefit. But even if you will 100% never do that I just don't the see advertised benefit for the workers.

This is just something that sound nice when you don't think too much about it. That explains why the companies are eager to implement this benefit at their companies. At the end the workers will struggle just as much and the struggle will stay hidden from the eyes of the employers, because of the financial problems stigma.

[fcaballe]

Hey qnsi!

I am leading BizDev at Payflow, I joined due to ethical reasons & social impact. Happen to be that I am southamerican and pretty familiar with people living paycheck to paycheck.

The reason why they are better off is because we are the only alternative that is free for them: Credit cards, loans, etc are not zero-rate. Far from that a loanshark can charge up to 3000% for a short term loan in LATAM.

We are bringing employers into the game, to actually do something and pay so that their employees get the zero-rate that is so popular for high income workers through their cards or banks.

What reduces your purchasing power is financial expenses, not accessing your money earlier.

We won't solve every money problem, but at least we are solving some and reducing low income workers exposure to predatory finance.

Hope you appreciate my answer, it was 100% sincere. Fede :)

[gotostatement]

>And the proposed solution doesn't fix that. Most of those people don't have a problem with unexpected expense once a year. They don't budget and are short on cash every month. So now imagine Bob needs money halfway through the month. He takes out 50% of his pay. He uses is for immediate needs and than has to live at 50% of his pay for the next 1.5 month.

This is extremely paternalistic and shows how little you automatically think of someone who isn't paid a lot of money. You think that people who don't have money, their problem must be budgeting ("stop eating all that avocado toast!!"), so you need to slowly ration out their money "for their own good." Complete ideological BS.

[potamic]

I have a cynical view of how this product is going to turn out. Instant, easy access to wages is going to form habits in users to live on a day-to-day basis instead of budgeting for a month. With no headroom they will be that much more desperate in an emergency and that's the time to attack them with loans. The end game is always loans. That's the only way to make money in finance.

[colejohnson66]

> And the proposed solution doesn't fix that. Most of those people don't have a problem with unexpected expense once a year. They don't budget and are short on cash every month. So now imagine Bob needs money halfway through the month. He takes out 50% of his pay. He uses is for immediate needs and than has to live at 50% of his pay for the next 1.5 month.

I think the idea is that it helps people avoids predatory payday loans. If Bob needed 50% of his pay for an emergency, he could go to a payday loan and end up spending a whole paycheck or more just paying it back over time.

The solution is government regulation and societal safety nets, not this, but if one’s government doesn’t fix the problem, there’s not much you can do besides this.

[UncleMeat]

I don't buy this criticism. Suppose we were instead paid our salary annually as a lump sum at the end of the year and we were fighting for biweekly pay days. The same argument could be made! What if people misuse the money! The delay helps them budget!

The two week (or so) delay between hours worked and money being deposited in your bank account is a free loan from you to your employer. That's wrong. People should be free to access their earned income as soon as they earn it.

I do agree that this sort of product can easily become a payday loan system with terrible rates, but streaming your wages as you make them sounds like a pure good.

[seahawks78]

We need universal basic income (UBI)! Period. I believe that in a country like US every working adult (18 - 64) should get a minimum of 5k a month for paying basic expenses. Furthermore, Payflow should be integrated with the government UBI program so that anyone can withdraw money against it similar to what is being done now. This will go a long way in solving the Payday problems/worker exploitation issues as mentioned above.

[andrewingram]

It's a great problem to solve, and killing the payday loan industry is a good thing to do.

Out of curiosity, why is the app UI and feature set practically identical to Wagestream (I worked there last year, so i'm pretty familiar with it)?

[nathancahill]

Wow, you aren't kidding. Even the copy on the landing page is a Spanish translation of Wagestream's landing page.

[portman]

Sincerest form of flattery. Plenty of room in this market for all players.

[asukhwani]

Interesting observation! There are 100+ startups in the world trying to help with on-demand pay! Most of them have a very similar UX/UI.

[jon-wood]

> We thought employees would use our app because it’s innovative, but they mostly use it because they really need the money. This came as a surprise to us.

I'm having real difficulty working out how this could possibly have come as a surprise, of course people are using your pay advance app because they really need the money. Why else would someone take an advance on their pay?

[danielmarkbruce]

It's probably just the degree. This is a common thread - any payments company who has enabled an "instant pay" feature will tell you they were surprised how much it was used.

[asukhwani]

Good point. It would have been more accurate to state that we were surprised at how much people used the app! Over 40% of employees that have access to our app use it! Also, we were surprised by how high user retention is.

[SimonPStevens]

This still seems no different from giving the employee a payday loan (admittedly at zero percent interest).

It's not going to solve anything because they are just taking money early that they will need next month.

It might seem attractive initially, but within a few months the status quo will have reset and those employees who were living paycheck to paycheck will still be living paycheck to paycheck, just now it will be day by day waiting for their accrued amount to increase.

I suspect as a company you could do well, but you aren't solving any problems for the employee. And you may find that as business pressure increases you'll end up exploiting them in some way because they are vulnerable and have little protection. It won't be long before someone on your board says something like "hey, we could make a bit more money if we start charging x% interest to get early access pay they won't accrue until next month. That's fair because we're taking the risk they might not accrue it all." And before you know it you are just as bad as every other payday lender out there.

This unexpected expenses thing sounds like poor justification to me.

And charging the company Vs the employee is no different. If you didn't charge the company they could instead increase the wages of their staff by the equivalent amount. You are just taking money out of the potential pot that goes to the staff. Staff costs is just a single line on our summary p&l which includes salaries and benefits.

[gotostatement]

> It might seem attractive initially, but within a few months the status quo will have reset and those employees who were living paycheck to paycheck will still be living paycheck to paycheck, just now it will be day by day waiting for their accrued amount to increase.

Except now they have money available to them in realtime, continuously according to the work they've put in, without having to wait for discrete points in time where their bank account refills.

> This unexpected expenses thing sounds like poor justification to me.

The fact that people use it shows people want it. The paternalism towards people who don't have enough money is really staggering. This line of argumentation reeks of "Poor people cant manage their finances - they dont know whats good to them"

> And charging the company Vs the employee is no different. If you didn't charge the company they could instead increase the wages of their staff by the equivalent amount. You are just taking money out of the potential pot that goes to the staff. Staff costs is just a single line on our summary p&l which includes salaries and benefits.

Salaries have other pressures maintaining them besides available funds for salary, like minimum wage and market rates. As we have known for years based on the utter failure of "trickle-down economics", salaries paid and available funds often have little to do with one-another.

[smoe]

Since as I understand you are expanding to LatAm, as someone having worked in Colombia for the last 5 years on b2b and b2c tech products for people on the low to mid side of the socio-economic spectrum, some top of mind thoughts. Hope it helps.

- Living paycheck to paycheck is a problem, but the underlying cause is more often than not having a job month by month. Even more so since the pandemic. The majority of people work in informality, only have contractor contracts or work for temp agencies with the outlook to eventually get hired into the client company.

- There is very little trust within society. People are very skeptical, justifiably so, to get screwed over by new financial products. Also employers have very little trust in their employees. At least from an European perspective it is ridiculous what hoops people have to jump trough to get basic jobs. Background checks, lie detector, medical exams, etc. Which means it can easily take 1 month+ from first interview to starting work.

- Economic gap is massive. The decision makers you are going to sell your product to often live and have lived their entire lives in completely different universes than the potential users. So you are going to have mixed experience how empathetic they are to the cause. Some certainly are and want to make a change.

- Many people don't have bank accounts where you could transfer the money to. As far as I know this has changed quite a bit during pandemic but cash and cheques are still very common.

- The very small amounts ($50-70) you mention are quite a bit of money here. Minimum salary is $260. A small amount here would be more like <=$5. Don't have in my head what the fees and taxes on bank transactions are.

- The users are going to have a ~$50 android phone laden with ISP nonsense, outdated OS, pre-paid expensive data plans and flakey internet connections where they live. So the app needs not just be shiny, but efficient.

Within the group we also launched products in Mexico and Peru, where some things are different but haven't been involved much in that. Happy to chat about if you are interested.

[fcaballe]

That's amazing insight smoe.

We are indeed aiming for low income worker population in LATAM and your calculus is right:

- Here we see around 50Euros for a salary of 900/1000 so around 5 to 7% of your salary withdrawn.

- We would expect even smaller quantities in LATAM.

App is super lean and accessible by every phone and building trust among our community (users & companies) is key.

[asukhwani]

Thanks a lot for sharing these learnings. We will keep them on our radar. Sure, would be great to chat!

[ludwigschubert]

It’s great that you’re finding a way to pay people quicker that’s less bad than payday loans!

What stops employers from paying wages more often right now? When I worked in the US, some places would pay you every two weeks. With instant bank transfers, couldn’t that frequency go down to weekly or daily, without the need for a middleman?

[asukhwani]

100 years ago, people were paid just after they worked. There are two reasons why that stopped being the case. Firstly, it’s a lot of work for the company. Secondly, it’s worse for the company’s cash flow. As others have also replied, the first is most significant.

[II2II]

A lot of it would depend upon how payroll is handled. There are plenty of employers where the hours worked are written on paper, then transcribed to a common document format and sent to payroll, then transcribed into the payroll software. Since so much of the process is manual, it is likely to be batched and performed weekly. Even when it is done daily, the daily is unlikely to include weekends (which is shifted to end of day Monday). In other words, they would have to completely alter their process to actually pay daily. That alone would likely make the process more expensive. Doing more bank transfers would add more expenses. The software used to handle payroll is a middleman for all intents and purposes, and that is unlikely to go away.

For what it's worth, I have seen that process used in both the private and public sector as well as with organizations that employ thousands of people.

[OoTheNigerian]

Hi Benoît & Avi,

As part of my advisory business, I've seen a few companies tackling this in Africa. My biggest question has been, isn't this a "feature" than can be deployed by the existing Payroll companies?

These days we have a lot of Credit As A Service companies. Why can't a Payroll service connect to them and provide this service as an add on.

To summarize my question: can your innovation get distribution before the Payroll services get (this) innovation?

Or wouldn't you inadvertently have to encroach into that space eventually?

Or do you see yourself extending towards the credit side of things?

All the best!

[antihero]

I mean, if workers are withdrawing money this month, which I presume is then taken off their wages next month, they are now in the hole, and even without interest, the problem just gets worse and worse, because then the next month they are more likely to withdraw early because they have less money.

I do not know if this is financially responsible. How exactly will this prevent a horrific snowballing effect?

[jkhdigital]

If you step back for a minute, consider this question: when do you pay for goods and services? Usually, the moment you receive them. When does your employer pay you for the services you provide? …two weeks later, wut

[asukhwani]

jkhdigital is right.

Also, bear in mind that our average user in Spain takes out 50$, whilst their salary is >1,000$. We also regularly survey users to see chat reasons they make withdrawals for. Our conclusion is users are taking small portions of their salary to cover unexpected expense.

It’s so much better than paying for an expensive overdraft!

[sagarm]

You could say the same about credit cards and their grace periods, but plenty of people are able to use those without incurring fees.

This product doesn't even seem to have the risk of generating fees directly.

[giantg2]

I see there are a lot of people knocking this. I agree it doesn't really fix root cause of the issues, but it does provide a better option than many of the existing ones. I can see this tool being used in a responsible way by a small percentage of people. I'm sure there are many others who would shoot themselves in the foot with it, as is true with many tools in life.

So overall, I'm trying to say that I do see some valid concerns here, but I also think there could be some value.

[datavirtue]

Sort of like this?: https://www.earnin.com/

[asukhwani]

This is one of 100+ players trying to solve this problem. It’s a real problem and lots of us are trying to solve it!

[naturalauction]

As interest rates are low atm (or even negative) it might not be an issue but why wouldn't employees take out the maximum loan every month (as they are not paying for the loans) and put that money in a bank account. Is this a risk you have considered and does the employer pay more if employees are doing that?

[prepend]

Isn’t this problem more easily solved by more access to credit cards? It seems like the examples where an advance is needed would be more easily, and even cheaply, solved by using a credit card and repaying on payday.

There are instant approval credit cards and low credit limit cards.

And credit cards even allow cash advances at 20-30% annually.

So, for the example with the gas station customer, using a credit card and carrying the balance for a few weeks would cost them $0 in fees if paid back in the same timeframe as this pay advance. Or they could take a cash advance from an atm and pay 30%/365*num days until repaid.

[jkhdigital]

The difference, I think, is that the credit card model is an unsecured loan while Payflow seems more like receivables financing. Big difference in the perceived risk exposure.

[fcaballe]

Almost none low income workers have access to a zero-rate credit card with credit limit available and zero annual fees.

Besides that unpaid balance carries interest.

The idea is to de-risk by bringing their employers into the equation :)

[airza]

>In fact, we even give employers an optional feature where they can set a cap on the % of salary that their employees can withdraw. Can you clarify this?

[ludwigschubert]

Not OP; I read it like this: employers get to decide which portion of an employees wages are available for Payflow’s early withdrawal scheme. After that percentage of the wages has been withdrawn through Payflow, the remainder will be paid out normally, i.e. at the end of the month.

[asukhwani]

Suppose an employee has a salary of 1,000$ per month. If the employer sets this filter at 50%, the employee can only withdraw up to 500$ on Payflow. Makes sense?