Eas­ing in­come volatil­ity with an app

Los Angeles Times - - BUSINESS - By Tracey Lien

OAK­LAND — Mo­bile apps are of­ten hailed as a so­lu­tion to many of life’s most mun­dane prob­lems. Need to or­der a pizza? Hail a ride? Get some­one to do your laun­dry?

But when it comes to the so­cial and eco­nomic prob­lems that plague mil­lions of Amer­i­cans, the app world hasn’t been as quick to of­fer help.

One com­pany, Even, is buck­ing the trend of flap­ping birds and candy wait­ing to be crushed by cre­at­ing an app that aims to im­prove the lives of some of Amer­ica’s least-priv­i­leged. Its mission: to solve in­come volatil­ity.

Mil­lions of Amer­i­cans who free­lance or work hourly jobs ex­pe­ri­ence in­come fluc­tu­a­tions: They don’t know how many hours they’ll work each week, and they don’t know how much they’ll get paid. They in­clude fast-food work­ers, nail sa­lon tech­ni­cians, maids, gar­den­ers and re­tail em­ploy­ees.

The Even app, cur­rently by in­vi­ta­tion-only, eases users’ in­come volatil­ity by sta­bi­liz­ing their take-home pay. That goes a step fur­ther than the slew of bud­get­ing apps out there that sim­ply show users how much money they have and how much they should spend and save.

Here’s how it works: The app con­nects to peo­ple’s bank ac­counts and sees when the per­son is paid. It then cal­cu­lates an av­er­age for what the per­son would be paid if his or her in­come were sta­ble, and pays them that amount each pay­day.

If a per­son gets paid less than the cal­cu­lated av­er­age, Even au­to­mat­i­cally boosts his or her pay by giv­ing an in­ter­est-free ad­vance. If a per­son gets paid more than the av­er­age, Even puts aside that bonus cash to pay back past ad­vances and for fu­ture ad­vances.

Even plans on reach­ing those who need the ser­vice the most by part­ner­ing with com­pa­nies with hourly work­ers. Although no part­ner­ships have been an­nounced yet, a ser­vice like Even could ben­e­fit work­ers at com­pa­nies like Star­bucks, Best Buy and Whole Foods, with the prom­ise of re­duc­ing worker at­tri­tion caused by fi­nan­cial stress, co-founder Jon Schloss­berg said.

The Oak­land com­pany charges users $3 a week for the ser­vice, which can be suspended at any time.

If it sounds like the com­pany is tak­ing on a big risk, that’s be­cause it is. One of the big­gest chal­lenges the com­pany will face is when a user loses his or her job or is un­able to pay back the ad­vances.

Jake Fuentes, founder and chief ex­ec­u­tive of bud­get­ing app Level Money, said Even could play an im­por­tant role in fill­ing a mar­ket niche, but it may find it­self in the dif­fi­cult po­si­tion of

hav­ing to cut peo­ple off if they’re deemed too risky a cus­tomer.

The founders are aware of th­ese po­ten­tial hur­dles. Even isn’t a bank. It doesn’t dole out loans or charge in­ter­est. It makes money when cus­tomers sub­scribe to the ser­vice but don’t need Even’s ad­vances.

Schloss­berg ac­knowl­edged that the busi­ness model may not im­me­di­ately look prof­itable when com­pared with pay­day loan com­pa­nies, which make money off charg­ing peo­ple in­ter­est when they are in fi­nan­cially des­per­ate sit­u­a­tions.

“But with a mission like this, I ask you: Be­cause we might fail, does that mean we should not try?” he said when the ser­vice was first an­nounced in Jan­uary.

Schloss­berg is par­tic­u­larly determined to make Even work be­cause he sees it as a so­lu­tion to a prob­lem that he said he’s been fas­ci­nated by since hewas a teenager. He re­calls watch­ing “Cops” when he was 16 and notic­ing the same per­pe­tra­tor in two sep­a­rate episodes.

“That was re­mark­able to me,” he said. “Ap­pear­ing on ‘Cops’ once is bad enough be­cause it means you’ve made some bad de­ci­sions. But to be on ‘ Cops’ more than once, you have to be se­ri­ously mak­ing some bad de­ci­sions in your life. That was just un­fath­omable to me.”

So be­gan what he de­scribed as a “ca­sual ob­ses­sion” with find­ing out why peo­ple make ob­jec­tively bad de­ci­sions, and what can be done about it.

His re­search pointed him to an area of neu­ropsy­chol­ogy that looked at the ef­fect of poverty on cog­ni­tive func­tion. Dozens of sci­en­tific jour­nals have de­tailed how the stress of living in poverty can af­fect brain chem­istry, which can lead peo­ple to make poor de­ci­sions.

Schloss­berg and his fel­low Even co-founders Ryan Gomba, Cem Kent and Quin­ten Farmer saw an op­por­tu­nity to do for poverty what Sil­i­con Val­ley en­trepreneurs have tried to do in any field they’ve en­tered: cause dis­rup­tion.

A 2015 re­port by the Eco­nomic Pol­icy In­sti­tute found that more than 30% of work­ing Amer­i­cans ex­pe­ri­ence sig­nif­i­cant spikes and dips in their in­comes, and the low­est in­come work­ers tend to be the most ad­versely af­fected. A re­port pub­lished by the JPMor­gan Chase In­sti­tute this year called on gov­ern­ment and cor­po­ra­tions to de­velop tools that could help peo­ple man­age their bot­tom­line.

Other tech com­pa­nies are also step­ping up.

Mint is one such app that has risen to the oc­ca­sion, help­ing cus­tomers track their spend­ing. Level Money re­cently up­dated its app to de­tect nu­ances in trans­ac­tions and help peo­ple bud­get for bills, loan re­pay­ments and other re­cur­ring ex­penses. Even gets more in­volved by man­ag­ing peo­ple’s money for them.

The app is al­ready see­ing re­sults among the small group of hourly wage work­ers who re­ceived early ac­cess to the ser­vice. The com­pany says peo­ple whose take-home pay was once tied to un­pre­dictable work sched­ules or client num­bers have re­ported feel­ing less stressed and be­ing bet­ter able to plan their spend­ing and loan re­pay­ments.

“I feel like I have more se­cu­rity be­hind me,” Heather Ja­cobs, 28, a mas­sage ther­a­pist whose pay is determined by how many clients she mas­sages in a day, said in a video the com­pany put to­gether. “I’m not stress­ing com­pletely over pay­checks any­more.”

But even if the com­pany of­fers a com­pelling so­lu­tion to in­come volatil­ity, it still faces hur­dles, said Ariel Michaeli, chief ex­ec­u­tive of an­a­lyt­ics firm Ap­pFig­ure.

“It’s an in­trigu­ing idea, but for them, the chal­lenge is go­ing to be how do they sell this kind of con­cept?” Michaeli said. “How do you ed­u­cate the mar­ket and get ev­ery­one to use it? For them, it’s all about the big num­bers, and they have to hit a crit­i­cal mass. It could be an up­hill battle.”

There’s also an ex­is­ten­tial prob­lem: If Even suc­ceeds, isn’t it help­ing its cus­tomers not need a ser­vice like Even down the line?

“That’s a valid point,” Schloss­berg said. “What that means is as a busi­ness we need to of­fer more prod­ucts that are valu­able to peo­ple when they achieve the next level.”

KirkMcKoy Los An­ge­les Times

THE EVEN APP is tar­get­ing the mil­lions of Amer­i­cans who free­lance or work hourly jobs and ex­pe­ri­ence in­come fluc­tu­a­tions, such as re­tail em­ploy­ees and nail sa­lon tech­ni­cians. Above, a nail sa­lon in Bev­erly Hills.

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