Entrepreneurs bring payday into the 21st century
Budding services instantly connect workers with their hard-earned cash
Is the payday loan business due for disruption? A pair of Vancouverbased entrepreneurs are betting on it.
Serial entrepreneur Steve Barha has quietly rolled out Instant Financial, a payroll system that allows workers to access a portion of their pay with a smartphone app any time they want — or, more precisely, when they need it the most.
Meanwhile, UBC engineering student Rish Chaudhary has launched Taski, a service that allows young workers to pick up shifts when they need cash without having a regular job.
That sensation you’re feeling is a seismic shift in the employeremployee relationship. The world is increasingly moving in real time — what you want, when you want it — with the notable exception being payday. So far, the money you are owed for working every day has been locked up for at least two weeks at a time.
Younger workers and those in the service sector are heavy users of payday loans. More than 40 per cent of adults under 35 have taken out a payday loan, and 159,000 British Columbians took at least one such loan in 2015, according to figures released by the provincial government.
Although he is firmly in Instant’s target demographic, Kino Messiah, a cook for DeDutch Burrard Landing and a business student, wasn’t sold on the service at first.
The Instant smartphone app allows workers early access to 35 per cent of their earnings, which can be directed to a bank account or to a debit-style card. Experienced Instant users can access up to 50 per cent of their pay in advance.
“I thought having another card and another PIN was too much, but I love using my Instant card now,” he said.
Messiah estimated he has used the advance pay feature at least 10 times over the past seven months.
“The Pay Me feature only gives you half of your pay, but that is more than enough to cover a cellphone bill or extra money at the grocery store,” he said.
Instant also sends a notification when workers’ regular pay is deposited, and they can use the app to move money around to other accounts and use the Instant card at bank machines.
DeDutch was a beta tester in the early development of Instant, rolling the system out at its Port Coquitlam location. President Bill Waring is convinced that payroll innovation could be a powerful employee retention tool in an industry that sometimes struggles to keep skilled staff.
DeDutch pays its kitchen staff above minimum wage and runs a tip-sharing program that tops up the peak hourly wage to about $22 an hour. But semi-monthly paydays were clearly not cutting it for DeDutch’s younger workers.
“I had asked my managers whether our workers ever wanted to draw advances on their pay, and they said yes, all the time,” Waring said. “They were also getting calls from payday loan companies confirming the details of our workers’ employment.”
DeDutch employees have fully embraced the Instant Financial system.
“In the early stages, when there were still some glitches and the system went down for a couple of days, well, you would have thought it was the end of the world,” Waring said. “In just a month or so, (our workers) had started to rely on Instant and they liked it.”
Waring is also pleased to do his part in putting “predatory” payday loan companies out of business.
Instant CEO Steve Barha is convinced change is long overdue.
“The last innovation in payroll was 1867, when we moved from paying employees with precious metals to cash or cheque,” he said. “Not much has changed since.”
Payday lending, administration costs and cheque-cashing fees cost North Americans $100 billion a year, Barha said. Add to that another $100 billion in late fees and service fees when people — usually young and employed in the service sector — can’t pay their bills on time.
“That $200 billion in loans and predatory fees exists because people’s pay is locked up in the disbursement system,” Barha said. “That money is being pulled out of the pockets of people who can afford it the least.”
Perhaps unsurprisingly, the optin rate for people under 30 is nearly 100 per cent, Barha said. One-third of employees who are using Instant say they are saving on late fees and penalties, he added.
“For young people, it’s not even a question: ‘Of course I want access to my money every day,’ ” he said. “With everything else in real time, why isn’t your pay available in real time?”
Instant also enables users to build a cash-flow calendar to help them plan how they will get through the month.
“We worried at first that we might create a generation of maniacs who will be at the casino after every shift,” Barha said. “What we’ve seen is the exact opposite. We heaved a big sigh of relief.”
Rish Chaudhary was also looking to release young workers from the bonds of the two-week pay period when he founded Taski. At its heart, Taski matches service industry businesses with a small army of potential workers.
More than 1,000 labourers have already signed on. Companies post available shifts and taskers can pick the ones that suit their schedule, show up and work.
‘Of course I want access to my money every day.’ … With everything else in real time, why isn’t your pay available in real time?
Today’s young workforce is made up of people with incredibly busy lives — and many would prioritize flexibility over higher pay, Chaudhary said.
“We see a world where workers and employers are part of fluid networks and where you can find work when you need it with your mobile,” he said.
The inspiration came from his own experiences. As a young student faced with a heavy class and study schedule, Chaudhary couldn’t hold down a traditional job.
“I met this really cute girl and I wanted to impress her by taking her to a fancy restaurant, but of course I was broke,” he said. “I wondered what it would be like if I could just pick up work whenever I wanted to.”
Chaudhary, at just 19 years old, founded Taski about a year ago and joined The Next Big Thing, a startup accelerator for young en- trepreneurs founded by Meredith Powell and Hootsuite CEO Ryan Holmes.
Taski has recently raised preseed funding of $150,000 from Silicon Valley and B.C.-based investors. The plan is to raise another $5 million by the end of January.
Most of Taski’s business clients are catering and event firms that have relied on agencies to provide workers. A single event usually generates 10 to 30 shifts.
“I had worked in the hospitality industry and so I know there are always open shifts,” Chaudhary said. “There is high turnover and these places are often desperate for people.”
Clients can pick through worker profiles, see what they have done through Taski and read reviews of past performance.
Taski charges employers a 20 per cent premium on the hourly wage paid to its workers, so a $10-anhour job is billed to the client at $12 an hour.
Taskers are credited with their pay right after their shift, but Stripe takes several days to deposit the money. Naturally, Chaudhary intends to move to something faster.
“We are working toward an instant pay system,” he said, “and I think that will attract even more workers.”
There are always open shifts … There is high turnover and these places are often desperate for people.