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Fintech

Clair: Rewiring How America Gets Paid

The fintech company is building the country’s fairest financial institution by doing things differently.

IN tHis BRIEFING
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ACTIONABLE INSIGHTS

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about Clair.

  • America's pay cycle is broken. The typical worker is paid on a biweekly basis. While this is the standard, it makes little sense. Why shouldn't employees get paid for the work they do each day? The current setup effectively gives companies an interest-free loan at the expense of workers. 
  • Payday lenders often harm more than help. Because of the unfavorable pay cycle mentioned, many Americans live in constant financial instability, unable to weather economic shocks. In tight times, millions turn to payday lenders. These predatory operators often charge more than 600% APR, creating a cycle in which workers fall into a constant deficit, taking out new loans to finance old ones. 
  • Some problems are best solved orthogonally. How do you build a fair on-demand pay company? Clair decided to start by building a digital banking platform. Although Clair is not a bank, this unorthodox choice has proven savvy. The company monetizes by adding value, not extracting it. 
  • The impact of Clair's product is profound. Research shows that on-demand pay reduces absenteeism by 34%, reduces turnover by 40%, and increases job performance by 86%. Especially after considering its innovative no-fee business model, offering Clair is the closest thing to a no-brainer for employers. 
  • Clair's business model creates a rare four-way win. It's unusual to come across a company with a model as elegant as Clair's. It offers on-demand pay at no cost to either the worker or their company. Better still, the HR platforms that Clair partners with and that distribute the solution generate revenue. Workers, companies, platforms, and Clair all win.   

This piece was written as part of The Generalist's partner program. You can read about the ethical guidelines I adhere to in the link above. I always note partnerships transparently, only share my genuine opinion, and commit to working with companies I consider exceptional. Clair is one of them.

One of the sneaky injustices of the American financial system is how it handles wages. If you think about it, every employee is secretly a lender. They go to work, expend their efforts, and then…wait. Fifteen days, thirty, perhaps even longer. Only then do they get compensated for their work; only then are they paid. 

Does this make sense? Few other parts of our economy work this way. You don't order a pizza and pay the restaurant a month later or fill up your gas tank, then post a check to the service station when you get around to it. The fact that "buy now, pay later" companies feel like a novelty illustrates that delayed payment is far from the norm, except for labor. 

The result is that the average worker effectively extends an interest-free loan to their employer. They do their job and then provide a 0% APR float to the hiring company, all while racking up their own expenses. The unfairness of this cycle is part of the reason that just 39% of Americans could pay for a $1,000 emergency expense. By default, the wages you have earned, the money that is yours, lags both your labor and costs.

When disaster hits – medical expenses, car trouble, a broken boiler – workers must choose the best of bad options. That might involve calling on predatory payday lenders charging 600% interest or more for a simple advance. Even modern, software-forward alternatives levy substantial fees disguised as "suggested tips."

The survival of these paltry options is less an indication of customer desire than desperation. There simply is not a better option. Or, at least, there wasn't until Clair came along. 

Founded in 2019, Clair is one of the most interesting businesses I've analyzed. Partially, that's because you keep expecting there to be a catch. Rather than building a less-terrible payday lender, Clair addresses the root of the problem: the pay cycle. Instead of waiting for weeks, Clair gets you paid as soon as you clock out for the day. It doesn't cost the worker a penny – no fee, no suggested tip, no interest, nothing. Remarkably, not even the company that provides the service pays for it.

How does Clair make this work? The answer is both simple and complex. Clair monetizes through interchange fees. That might sound easy – a little business model twist but nothing more. In reality, the only reason the company can monetize this way is that it has gone through the convolution and headache of building a digital banking experience. It's reminiscent of a Steve Jobs quote: "It takes a lot of hard work to make something simple." If Clair's product looks almost effortless, that's because it has put in the sweat to make it so.

It could prove a profoundly impactful and profitable approach. Clair is correcting a fundamental financial transgression - correcting the penurious pay cycle. 

In today's piece, we'll discuss the subtlety and elegance of this innovative model while remarking on the risks of the "earned wage access" (EWA) space. In particular, we'll discuss: 

  • Origins. Three Swiss twenty-somethings recognized one of the great flaws in the American financial system. They devised a solution that even fintech veterans consider remarkable. 
  • Product. First-principle thinking led Clair to go many steps beyond a traditional EWA solution. In addition to an intuitive consumer product, the company has constructed a functional banking experience. That gives it the potential to roll out many additional features. 
  • Business model. Core to Clair's DNA is the belief that workers should not have to pay to access wages they've earned. To support that position, the company has constructed an elegant model built on partnering with time and attendance companies.
  • Culture. In Nico Simko, Clair has a CEO able to cut to the quick of an issue, scything through complexity. He's helmed a company focused on a serious mission that hasn't forgotten to have fun. 
  • Risks. There are few things so personal, so pivotal as handling someone's paycheck. Clair has embraced that challenge, but it comes with risks. Despite its efficacy, the company's model also has clear drawbacks. 
  • The future. What will Clair look like in five years? It has the chance to build a major fintech business for America's underbanked. 

Let's get started. 

Origins: The Swiss Connection 

The pain of payments

At first glance, Nico Simko is an unlikely candidate to reform the American financial system. Born and raised in Switzerland, Simko only emigrated to the United States after being accepted to study at Harvard University. 

To earn his pocket money, the undergraduate tutored economics, a role that introduced him to the traditional pay cycle. As Simko remembers it, he was baffled by the system's inefficiency. He was surprised to find that even at an institution like Harvard, payment arrived via a mailed paper check. Short on cash, he'd often find himself visiting his mailbox two or three times a day, hoping his latest remuneration had arrived. 

While getting paid was an inconvenience, finding a place to deposit his wages felt like an impossibility. It took months for Simko to receive a social security number and further weeks to open a bank account successfully. 

Was this the norm? Simko wondered. If it had been this tricky for him, an actual Harvard economics student, how hard was it for someone without his advantages? The thought stuck with him, though Simko didn't act on it immediately.

Friends and co-founders

His time in Boston would prove an essential part of Clair's origins for another reason: he met Erich Nussbaumer. Like Simko, Nussbaumer grew up in Switzerland, though his father is German and his mother, Peruvian. While studying economics at the University of St. Gallen, Nussbaumer was invited to spend a semester at Harvard. Perhaps because its educational system is so robust, few Swiss students end up in Cambridge, Massachusetts – as Nussbaumer recalls it, only three others were on campus during his stint. Naturally, he became friends with his fellow expatriates, including Simko.

It was Simko's drive that stuck out to Nussbaumer, and he was right to pick up on it. Not only had Simko proved himself a gifted student, but he was also a high-level athlete. Both before and during his time at Harvard, Simko was a member of Switzerland's Olympic fencing team, captaining the under-17 age group for a time. The intensity he brought to the piste showed up in everything he did. While never flashy, Simko had uncommon drive. 

Nussbaumer brought a gentler presence to their budding friendship. Though he'd been raised in prosperous Switzerland, Nussbaumer had spent extensive periods of childhood in his mother's country of Peru. Those visits contributed to a certain worldliness and unshowy compassion for those less fortunate. From early on, he hoped to find a career that would allow him to work on reducing inequality. He would write his thesis on "How to Increase Savings Using Behavioral Economic Theory in Mobile Banking Applications" – a sign of things to come. 

The pair's friendship endured, even after Nussbaumer returned to Switzerland, and would continue as they made their way into the world of work. 

Entering the idea maze

Simko had hoped to find a job at Venmo after school. Since he discovered it through classmates, he'd been quietly mesmerized by how powerful the application was, serving as an informal economic utility. Though he applied to several jobs, he was knocked back; the company wanted engineers, not economists. 

He ended up at JP Morgan. Though his role on the fintech investment, partnerships and M&A team didn't have the same sense of adventure as joining a startup, it did give Simko the chance to further his knowledge in the payments space. While he described his experience at the bank as doing little beyond pressing "F2 Esc" (IYKYK), Simko also learned the complexities of how money moves. 

After spending a few years at the Brazilian office of an analytics startup, a stint during which he developed a product for micro-finance institutions, Nussbaumer returned to Boston. While he completed a Masters in Public Administration from Harvard's Kennedy School, then continued to an organizational leadership consultancy, Simko rose through the ranks at JP Morgan. While outwardly thriving, both men began to think about building something of their own. Nussbaumer recalled "itching" for a new chapter. 

Though they had stayed close, Simko and Nussbaumer started talking more frequently. Simko seemed to have a new startup idea to run by his friend almost every other week. Over the phone, they'd talk through different businesses, working through problems and pitfalls. Nussbaumer remembers gently shutting down many of Simko's early notions, saying, "I don't think that's going to make sense." 

Then, one did. Around March of 2019, Simko called up his friend and shared an idea he'd been considering. Over the past few weeks, he'd spent his free time interviewing business owners, primarily those employing hourly workers like restaurateurs. He'd learned that little had changed since his tutoring days – proprietors still distributed some payments by paper check, a solution that pleased no one. Not only did it require effort on the owner's part, but it was both a headache and financial stressor for employees. Surely, there was something that could be improved, Simko thought. 

Nussbaumer had been primed for precisely this kind of problem. Every day on his walk to work, he passed a check cashing service. For $10 and 2%, workers could "conveniently" access the money they had earned. The math seemed ludicrous to Nussbaumer – someone that made $2,000 a month lost $60 of it just to get their own money. He agreed with Simko that the space was ripe for disruption. 

A few weeks later, the pair met in New York to have a longer discussion. It was a bright, chilly spring day, and over several hours, Simko and Nussbaumer walked Central Park's loop, talking through the idea, laying out certain "principles" for what they could build. On steps overlooking one of the park's fountains, they sparred over what their next steps should be. As Nussbaumer explained, "Nico and I butt heads regularly…this was [part of] the early productive tension we had." The day ended with both feeling like they were on to something worth pursuing. 

There was just one missing piece in Simko's mind: Alex Kostecki. Simko had met Kostecki in New York. While Simko worked at JP Morgan, Kostecki attended NYU Stern's MBA program. They bonded over their shared Swiss origins and business interests and had remained in touch as Kostecki built a career at Deloitte Consulting. He'd even come to know Nussbaumer, becoming friends over raclette in the city.

If Simko had the vision and ferocious drive and Nussbaumer brought product expertise and customer compassion to the incipient venture, Kostecki added something different. Charismatic and full of energy, Kostecki married strong leadership with a management consultant's structured thinking. 

In one of Deloitte's conference rooms (don't tell anyone 😉), the trio started mapping every part of the employer-employee relationship, looking for inefficiencies. Maybe there was something to be done in onboarding or scheduling? Perhaps communication systems should be improved?

A big vision

Over the following weeks, the trio investigated every angle they could find but kept coming back to the same place: payments. Nothing else seemed to cause such unnecessary pain.

Simko and this team decided they would need to build something radical to change the space. An incremental solution wouldn't be enough to shift industry norms and address the problem at its root. They needed to do more than offer a software solution or a more user-friendly lender to make a meaningful change. They needed to build a digital banking platform. 

By 2019, startups like Chime had already been in operation for six years, serving America's underbanked population with traditional debit and credit services. The company had shown the potential for challenger banks to disrupt the industry firmament, but to Simko, that heralded the beginning of a much larger revolution rather than the end of one. Sure, Chime was a significant player, but that didn't mean there wasn't room for another innovator. Moreover, to Simko's mind, he'd landed on a particularly promising wedge – rather than trying to compete for consumer eyeballs, he thought about acquiring customers through the businesses that employed them. 

In July of 2019, Nussbaumer left his job and started working on the project full-time. He had to wait a few months for Simko and Kostecki to join him – both needed some time to wrap up work before they could depart. At the time, the team named their project "Maverick," though we'll use its current name, Clair, for simplicity's sake. 

Throughout that summer, all three men put considerable time into Clair. Simko and Kostecki built robust financial models to better understand the dynamics of businesses in the space, while Nussbaumer began to put together prototypes. 

In September, they headed to Austin for the NAPEO (National Association of Professional Employer Organizations) conference. The annual event brings together CEOs and founders in the "professional employer organization," or PEO space. The trio must have stood out from the pack. The world of HR software is stereotypically stodgy, old-school, often insulated from tech's relentless urge to optimize. A group of young, Swiss entrepreneurs must have been anomalous, though it didn't faze Clair's founders. They had already attended numerous payroll association meetings in New York and had grown accustomed to being the youngest people in the room.

It proved a lucky trip. Not only did it give the team insight into the kinds of companies they would need to serve, it opened their eyes to the competition they faced. Though Simko knew he wanted to build a neo-bank, he was also aware that it would behoove his company to have a sharp initial product. Should Clair start by offering loans? What about income smoothing? The team's early front-runner was to offer no-fee pay advances – something of a revelation in an often predatory industry. By working at a company that partnered with Clair, hourly employees could get wages instantly, without employees or employers paying a dime. Clair would monetize through transaction fees. 

It's worth noting just how contrarian this plan was. While a handful of startups had emerged by 2019, offering a better alternative to payday loans, all of them monetized by charging either the worker or the business owner. Some did so by encouraging workers to "tip," while others presented their solution as a benefit financed by the employer. The fact that Clair believed it could build a large, viable business purely on transaction fees was a contrarian take. 

Despite pursuing such a novel business model, Clair's team felt like simply having lower pricing (even at $0) was insufficient. That intuition was bolstered by the trip to Austin, which illustrated the crowdedness of that space. Simko's team would have to do something even more unusual to separate themselves from the pack. 

If the NAPEO conference seemed to close one avenue, it opened another related to the budding company's distribution. Among the PEO and EWA providers was a class of businesses Clair's team hadn't thought of before: time and attendance companies. These organizations did exactly what their name suggests they would, managing clocking in and out and other scheduling-related features. Though many were old school, pitching physical machines or antiquated software solutions, Simko saw an opportunity. 

As Nussbaumer recalled it, Simko turned to him and shared his idea. Rather than trying to sign up workers via the company employing them, as he'd initially envisioned, Clair could partner with time and attendance providers and offer EWA solutions to all of their corporate clients. It was a win-win: time and attendance could provide an extra benefit to customers, while Clair could batch acquire hundreds or even thousands of businesses at once. Better still, by using time and attendance data, Clair would be able to advance wages effortlessly – they'd know precisely when a worker clocked in or out. 

Clair had an audacious mission, a great wedge, and a deft plan of attack. It was time to begin in earnest. 

Raising money

In October of 2019, Simko and Kostecki joined Nussbaumer as full-time founders. By the end of that year, they'd raised $500,000 from friends and family. 

It wouldn't take long for Clair to add more fuel to the fire. In early 2020, the team raised a larger seed round, led by Upfront Ventures. As partner Aditi Maliwal recalled, she was quickly impressed by Clair's vision and Simko's desire to build something great. "What totally hooked me was Nico and his presence." She recalled thinking, "this guy is pretty special."

Michael Vaughan, ex-COO of Venmo, was another participant in the round. For Simko, Vaughan's involvement was both symbolically and pragmatically significant. Not only had he admired Venmo enough to try and work there, he sought to build his business partially in its image. Clair should be a simple, intuitive product, Simko thought, as easy to use as Venmo and perhaps even more impactful. He secured an ally with deep, relevant expertise by bringing Vaughan on as a backer. 

Vaughan saw more than a little of his old company's DNA in Clair. As he told me, "They reminded me a lot of the Venmo team." In particular, Vaughan was enticed by the boldness of Clair's no-fee vision and the youthful exuberance of the founding team. 

"They're not traditional card industry guys," he said, "They just realized the space was broken and said 'It shouldn't be this way, let's fix it.' There's a certain appeal to that naivete."

The first customer and beyond

By the summer of 2020, Clair was ready to court beta customers. It found an excellent early fit with Bravo Care, a nurse staffing platform. Though Clair's product was still in its early stages of development, it was apparent just how impactful its offering could be. 

As the world came to terms with the pandemic, demand for frontline medical care reached a high water mark. And yet, their essential efforts and expertise were still compensated at a significant delay, meaning that many found themselves in financial trouble. After going live in late 2020, Clair got to see first-hand just how much its product meant to users. A customer video released in early 2021 showed its power: 

Like Simko hoped, Clair solved a significant problem without charging the end-user or business owner. The team quickly discovered that Bravo Care was far from an isolated case – pilots with HR software providers AOD and 7Shifts proved similarly successful.

Positive momentum with customers translated to the capital markets. In the summer of 2021, Clair raised a $15 million Series A from Thrive Capital. The firm has invested in fintech companies like Plaid, Ramp, Nubank, Monzo, among others. Partner Kareem Zaki saw the potential in the business, sharing Maliwal's assessment of the founding team. Indeed, in our discussion, Zaki noted that he'd looked for a company like Clair but had struggled to find one with what he believed was the right approach. When he learned about Clair's innovative model and distribution strategy, he felt Simko had "thought of the unlock that we hadn't."

In less than two years, Clair had gone from an idea to a meaningful, effective product with capital and connections. As Maliwal told me, "I believe this company will eventually be a public company and create a ton of value in years to come."

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Product: Building a neo-bank and beyond

Clair's product serves several different stakeholders. It benefits employees directly but does so by partnering with HR tech platforms and the companies they serve. Even this isn't the whole story, as much of Clair's product power comes from behind the scenes. We'll walk through each of these different aspects. 

HR platforms

As mentioned earlier, part of Clair's genius is its distribution model. The company partners with HR companies like Attendance on Demand (AOD), When I Work, 7Shifts, Workwell, Worklio, and others to offer no-fee instant pay to employees of the business that these platforms serve. 

How does the company do this? Today, Clair's integrations are almost entirely handled via APIs. That means that once it's up and running, little to no manual intervention is needed from either side. 

To get to that point, though, Clair and the HR tech platform have to align on where an on-demand pay solution should fit into the existing product and how the end-user can most effectively engage with it. In essence, these HR companies are adding a new, powerful feature to their product that can serve as a point of differentiation. While that can make a meaningful difference to their business, its impact is influenced by things like placement and messaging. According to Clair's Chief Revenue Officer, Lance Katigbak, it's this part of the process – effectively choosing where Clair's "button" lives – that takes the most time.

Though this can be tricky, it’s also a place the team shines. Brent Beatty, Senior Product Director at 7Shifts, remarked that part of the reason the restaurant scheduling platform partnered with Clair was that the company showed real product craftsmanship. In particular, they understood how important ease of use and a seamless UX was to the frontline workers 7Shifts serves. 

Even including the planning process mentioned above, integration is swift. Katigbak estimated it could take as little as two months to onboard a partner. That was bolstered by my discussion with Beatty. He mentioned that Clair’s speed of execution is so impressive 7Shifts employees have brought it up multiple times. 

In addition to guiding where an embed might live, Clair's team also works with HR platforms to hone messaging, set expectations around support, and ensure that a rollout goes smoothly. Given the interest Clair's team has fielded so far – one investor noted the company has "way more demand than we can service right now" – the offering seems to serve partners well. 

Employers

For employers, Clair is simple. Once integrated with the HR platform, they can seamlessly offer their employees no-fee on-demand pay. There's no need to fiddle with payroll or change up internal systems whatsoever. Employers can also choose not to provide on-demand pay – but why would they? 

Data collected by Clair shows that on-demand pay reduces absenteeism by 44%, drops turnover by 40%, and increases job performance by 86%. That final figure refers to an increase in shifts employees choose to take on. Given it costs nothing and requires no work on their end, taking advantage of Clair's product when available is a no-brainer. 

Employees

By now, we know what Clair means to workers. It can be the difference between falling behind on a rent payment, getting a car fixed, or being able to buy groceries that day. But how do employees access Clair's product?

Let's use an example. 

Back in college, I spent a few summer months working as a grocery cashier. I had irregular hours – sometimes working early in the morning, other times in the afternoon – and was paid at two-week intervals by paper check. 

Let's pretend that the grocery store I worked at used a scheduling platform like When I Work and that after a few weeks, they upgraded me to digital deposits. Their software makes it easy to organize shifts, track time, and communicate across a team. They're also one of Clair's partners. (In a fun twist of fate, When I Work serves Harvard University alongside chains like Dunkin Donuts and Jamba Juice. The next Nico Simko might not have to wait to get paid.) 

To track my shifts at the grocery store, I'd log into the When I Work app. If I wanted to pick up some more work or make a change, I could do that, too. Then one day, when I log on, I see a message and a new modal. By switching my direct deposit to a service called Clair, I can start getting paid for my work much faster – even daily if I want. Whenever the paycheck from the grocery store hits my account, Clair is automatically paid back without costing me anything. 

In addition to this service, Clair provides many of the same perks I'd get from a traditional bank – often at a lower cost. Once I'm signed up, I get a debit card, spending and savings account, a mobile wallet, access to 40,000 fee-free ATMs, and free ACH transfers domestically. If I need help with anything, I can reach out to the "Clair Care" team with questions. 

Despite its clear cost advantages, getting someone to switch their direct deposit isn't trivial. Several members of Clair's team mentioned that customers were often willing to try out a new bank, but going through the effort of redirecting wages was harder. Workers are reasonably sensitive about their money and often may not have the time to complete a switch. As COO Kostecki described it, tethering your paycheck to a new product can be a "pretty emotional experience." To address that, Clair provides hands-on support and flexibility. For example, users can direct just part of their paycheck to Clair, sending the remaining portion to a different bank. 

Once up and running, Clair's solution acts as a kind of automatic safety net. Any time you want or need to get paid, it's there to help. As soon as customers are fully onboard, Kostecki says, "they get it and they love it."

Behind the scenes

None of this would be possible if Clair didn't go through the effort of constructing a full-service banking platform. By Simko's estimation, it took the company a full eighteen months to do so. It managed this process by building on top of Metabank, a publicly-traded financial service provider. Though typically an under-the-radar business, the Midwestern company captured recent attention with a savvy deal: it sold the naming rights for the word "Meta" to Facebook for a reported $60 million. 

In addition to Metabank, Clair relies on Galileo to handle payment processing – a financial infrastructure business used by neobanks like Monzo, Ualá, Dave, and SoFi.

Though building a banking foundation took Clair time and capital, it has positioned them to offer a fuller service that can expand over time. 

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Business model: Win-win-win(-win)

Clair operates in an industry that benefits from confusion and opacity. Lenders may obscure the actual cost of their offerings or disguise them under different names. To avoid any ambiguity, let's walk through some of the different approaches in the space before unpacking Clair's model.

Incumbents

There are good reasons to dislike providers of payday loans. The point of these lenders is to provide a cash advance on an upcoming paycheck. Even though they're intended to address a short-term financial deficit, the interest they charge is often exorbitant. As we mentioned earlier, APRs can surpass 600%. 

The Consumer Financial Protection Bureau (CFPB), a national governmental group, shares an example of the hole this can create for consumers. Imagine you need an advance of $300. According to the CFPB, it's "common" for payday lenders to charge $15 per $100 received for a two-week loan. That means to get your $300, you're now on the hook for $345. 

Say two weeks pass, and for one reason or another, you don't have $345 to settle your debt. If permitted in your state, the lender might suggest you "rollover," meaning that you pay $45 to extend your deadline for another two weeks. Once a month has passed from the loan's origination, you'll owe a further $345. In total, you'll have paid $390 to access $300. On top of this rollover, you might get slapped with a late fee, further increasing your costs. 

The result is a vicious cycle that's hard to escape. Often, consumers bounce from one payday cycle to another, ending up paying more in fees than they borrowed. A 2016 Pew Research report noted that the average payday loan recipient pays $525 in fees to borrow $375 repeatedly. 

The high cost of payday loans may partially be due to the business structure. As one investor remarked, most of these loans are small, a few hundred dollars, and are issued by brick-and-mortar businesses. While that may contribute to the problem, the same Pew study notes that payday pricing doesn't seem to shift with competition and instead sits at the upper limit of what's allowed by each state. That practice suggests that many providers recognize the power of their position – without better alternatives, those in a bind can do little more than pay up. 

Insurgents

Starting more than a decade ago, tech-savvy substitutes began to emerge. These companies used software to provide loans across the country and avoided the costs of running physical stores. Often, these insurgents incorporated digital banking and earning data to underwrite advances. 

While some monetized through interest (albeit usually at a lower rate), some companies have taken other approaches. For example, in exchange for advancing $100, an app might encourage you to give a 10% tip. 

This is better than a payday loan. The customer controls how much they give, and the effective "interest" rate is considerably lower. Still, though, there's the sense that this isn't truly fair. Is 10% a reasonable amount to pay for a two-week loan? When converted to an APR, that "tip" surpasses 260%. When presented in a fast, slick interface, it's easy to imagine consumers not grokking how much they're paying for quick cash. 

Others take a different tack. Rather than charging the employee, some earned wage access platforms monetize via the employer. As we mentioned earlier, providing on-demand pay can boost retention, morale, and performance – isn't that worth subsidizing? If tipping-based models represent an improvement, companies that offer on-demand pay as a benefit are a step-change better. Employees unlock no-fee wage advances similarly to how they might access healthcare or a 401K. By providing a perk like this, companies help their employees avoid greedy lenders and break out of the debt cycle. The question is whether even this model goes far enough. 

Clair

While insurgents improved upon the work of incumbents, even the best approaches require payment from either employer or employee. Does that make sense? Should workers get charged for accessing their own money? Should business owners have to pay to offer it?

The company has devised one of the clearest win-win-wins of any business I've studied. HR tech companies win by adding a killer feature to their product that increases its stickiness and makes them money. Employers win by better supporting their workers, increasing retention and performance in the process. And lastly, employees win by accessing their money earlier, avoiding predatory loan providers in the process. Anne Gotwalt, Director of Operations, described what it feels like to onboard employees as they grasp this difference:

What's really cool is getting to talk to users who understand for the first time that we don't charge fees. There's no catch. When that sinks in…that is a really fun experience.

There is a fourth winner, of course: Clair. Without charging any one of its stakeholders, the company profits through interchange fees. When a consumer uses Clair's debit card to make a purchase, the company receives a portion of the fee collected by Mastercard. It then, indirectly, shares part of this revenue with the HR companies with which it partners. For every user a scheduling platform brings to Clair, they receive a recurring payment. 

In sum, Clair has a model that is effective and elegant. It addresses the needs and desires of each stakeholder and somehow finds a way for everyone to win. 

Culture: Focused and fun 

Clair is chasing a big vision. To make it a reality, the company relies on astute leadership, a talented distributed team, and respect for its mission. 

Leadership

As we've discussed, one of Clair's most noteworthy attributes is its leadership team. Every investor I spoke with highlighted the capabilities of the company's founders and the bond between them. 

Frequently, Clair's supporters pointed to the preternatural maturity of the company's executives. Kareem Zaki, for example, talked about how good he believes CEO Nico Simko was at selling to old-school businesses. Though still a young entrepreneur from outside the US, Simko can build rapport and communicate his vision with time and attendance providers who still rely on physical clocks. Aditi Maliwal called him an "incredible salesperson." 

That uncanny wisdom is a feature of the rest of the team. Though also early in his career, Alex Kostecki was described as the kind of COO always thinking several steps ahead – preparing the company for where it will need to be in a year. Nussbaumer has similar, unusual wisdom. 

Lance Katigbak is a newer addition to the leadership team. A college classmate of Simko, Katigbak started his career at Boston Consulting Group before hopping aboard his old friend's startup. After a successful stint as Head of Growth, during which time he dialed in the company's sales processes, Katigbak was promoted to Chief Revenue Officer. Simko described him as a significant addition to the team and "the most efficient person I've ever met." Not only is Katigbak a productivity powerhouse, but Simko characterized him as a natural leader with a gift for finding unusual solutions to complicated problems. "We've had investors say 'wow' when they meet him."

Perhaps because the team's relationships go so far back – as much as a decade in some cases – there seems to be an almost effortless understanding between them. As Zaki said of Clair's executives, "They have a deep alignment with what they're trying to build…[and] full trust in each other's domains."

Such a natural connection may be part of the reason Clair has succeeded in building a lively culture that is entirely remote. 

Distributed, not distant

One of Upfront partner Aditi Maliwal's jokes about Nico Simko is that she's never sure where he's calling from. One month he's in New York, the next he's in Switzerland. He's been known to pop down to Brazil or out west to Salt Lake City. Wherever he is in the world, it doesn't seem to matter – Maliwal says he's online and raring to go. 

That seems to be emblematic of the entire Clair crew. Though much of the team is based in New York City, the company has employees across the US and overseas. Executives are often in motion, particularly during the pandemic. 

Despite being spread out, Clair has real camaraderie, a connection built on remembering the little things. Every employee gets sent a cake for their birthday, for example. When the holiday season rolls around, leadership picks out a personalized gift for every team member. COO Kostecki seems to be a critical player here. Clair's Director of Operations, Anne Gotwalt, noted that Kostecki "definitely brings fun to the team" and is "really good at remembering that we all quit other jobs to join Clair."

Courtesy of Clair

Indeed, one of the company's core values is to "never miss an opportunity to have fun." The fact that Clair's managed to adhere to that ethos while operating with a distributed team is undoubtedly a serious contribution to Maliwal's assessment that "They make remote work seem like it's completely possible, no matter where you are or what time zone."

User-obsessed

Clair exhibits one of the fundamental traits of exceptional businesses: an obsession with the user. The company exemplifies that through its commitment to a no-fee business model and how it interacts with employees. According to Gottwalt, Clair encourages everyone in the organization to interact with the end-user. 

That approach starts at the top. Gottwalt recalled that before Clair had a user-researcher on the team, Kostecki texted dozens of different customers to get a sense of how they were using the product and where it could be improved. Engineers interact with customers, sometimes jumping into direct conversations to work on product fixes and improvements. The goal is to create the shortest path possible between feedback and implementation, ensuring that Clair's product is a true reflection of its users' desires. 

Risks: Shifting sands 

Every business has its risks, and Clair is no exception. While its distribution model had obvious benefits, its drawbacks could slow the company's momentum. Competition and regulation are other threats that Simko and his team will need to watch. 

Sales cycle

The industry Clair has chosen is not the most forward-looking. As Ginny Drinker, VP of Strategic Initiatives at When I Work, said to me, "No one has innovated on how you're paid for decades and decades."

While that gives Clair an advantage – incumbents seem to move slowly – it also affects their sales cycle. Potential partners may be risk-averse and potentially less technologically savvy. To date, Clair has collaborated with HR tech's most forward-thinking platforms. Will it be able to sign up more conservative partners? 

Given Clair's solution requires significant partner buy-in, it's reasonable to expect Clair to face a long sales cycle. As the company moves from HR tech's pioneers to its laggards, that may prove especially true. 

Could this be a significant impediment to Clair? It seems unlikely, at least in the short-to-medium term. As mentioned previously, the company has more demand than it can serve at the moment, meaning it can afford to be patient. Furthermore, because of Clair's approach, signing a single partner provides access to millions of workers. For example, when Clair's collaboration with When I Work is fully rolled out, it will be available to 200,000 businesses, who can then offer it to many employees. When I Work estimates it has served as many as 10 million employees. 

Of course, Clair is unlikely to be adopted by every business or end-user. But still, the numbers here are striking. With a single partner, Clair can aggregate 10 million customers. For reference, Chime, the US's leading neobank, has 13 million active users. 

While Clair's approach may require persistence, it can reach a massive scale with just a few partners. 

Competition

Chime is just one of the companies that could disrupt Clair's growth. While the neobank is expected to go public around a $40 billion market cap, it has created its value by going direct to consumers. Could it add a quiver to its bow by beginning to align with businesses? 

It would seem to be a fundamentally different strategy and not an area where Chime has developed clear competency. Nevertheless, it serves a similar demographic – America's underbanked – and has better name recognition. Perhaps to differentiate themselves from Chime, trailing neobanks could attempt a similar maneuver. 

Beyond companies switching up their distribution channels, Clair could also find its opportunity curtailed by traditional HR and payroll businesses. As the industry's sleeping giants wake up to the opportunity in the earned wage access space, they may decide to add Clair's first feature to their product suite. 

Some have already done so. Payroll companies Gusto and Ceridian provide on-demand pay as part of their broader solution. Could others follow suit? 

Clair's team thinks it's unlikely. Building an EWA solution from scratch is time and resource-intensive, particularly compared to partnering with someone like Clair. For many payroll providers, it also runs counter to their business goals. As Kostecki noted, "Payroll companies typically don't want to get into the lending business."

The surfeit of competition may thwart Clair from truly breaking out more than any one company. When I spoke with Ginny Drinker from When I Work, she walked me through how her business evaluated various companies before deciding on Clair. In the course of her research, she was shocked by the sheer volume of offerings, saying, "It was amazing the different business models that were out there for one product." That sentiment was echoed by another of Clair’s partners, 7Shifts. Brent Beatty noted that his team was “well aware of the option” of providing EWA support. The tricky part was finding the right solution. 

Can Clair cut through the noise? When presented with countless options – each claiming to be the fairest, freest, and most impactful – will potential partners recognize Clair's uniqueness? In our discussion, Gottwalt explained the company's challenge here, remarking that though Clair had product-market fit, finding "language-market fit" might require more work. 

The good news for Clair is that it has a truly singular product. And even if it doesn’t have quite the right words for it yet, the ethos of what it is building resonates with partners. Though 7Shifts knew about other products in the space, they signed with Clair because of the sense of alignment. As Beatty said, “It was pretty clear that our companies were on a similar mission.”

In time, Clair’s revolutionary product may speak for itself. In the interim, the company’s commitment to empowering workers can bridge the gap.  

Portability

EWA providers often struggle with the problem of portability. What happens when a worker moves from one job to another? Can they still receive wage advances? 

The answer is: usually no. Unless your next employer leverages a similar system, employees can go from having access to no-fee advances one week to nothing the next. To return to our example from earlier, if I leave my job at the grocery store to pick up shifts at the ice cream parlor, my Clair benefits don't automatically travel with me. 

Now, I still have access to my Clair account and can use it just as I would with any other bank. But its killer feature relies on the involvement of my employer. As mentioned, this is a challenge for every EWA business and remains one for Clair. 

Comparatively, Clair may have a slightly better solution in this regard. Because Clair works with time and attendance providers that serve hundreds of thousands of businesses, there's a better chance of someone's next job being on the "Clair network" than providers that rely on a specific payroll solution or sell themselves as a benefit, company to company. For example, even if the ice cream shop I go to uses a different payroll and benefits platform, if they happen to be on When I Work or 7Shifts, I can get full use out of my Clair account without needing to sign up again. 

As we'll discuss shortly, part of Clair's bet is that it can effectively blanket the US workforce. If it succeeds in doing so, the issue of portability will become moot. 

Regulation

Recent years have seen changes in regulation around lending. Some have been put in place to better protect and inform consumers. In that respect, they feel like a response to some of the insurgent services mentioned earlier that blur the line between an interest payment and a "tip," disguising the APR of this kind of suggested donation. 

Could regulatory shifts curb Clair's rise? It's possible but doesn't seem particularly likely. Rather than obscuring how its product works, Simko's company makes it extremely clear. It doesn't charge anything and sits on top of a fully-fledged bank. Those characteristics make it rather different from competitors. 

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Future: Fighting for financial freedom 

Right now, Clair is a promising product with obvious customer demand. What should it become? To establish itself as a generationally successful business, it will need to overhaul its industry, expand beyond EWA, and establish itself as a different kind of banking experience. 

Creating a new standard

When I asked Ginny Drinker why her company had decided to partner with an on-demand pay provider, she talked about where her industry was heading.

"I wouldn't care if we didn't get paid a dime for it," she said, speaking of Clair, "We just think this is the way of the future…it will go from nice to have to table stakes for any company."

Clair must seize the opportunity Drinker sees to create a new standard. If the company can sign up early adopters and serve them exceptionally, it should be able to leverage its success to win over the industry's laggards. Competitive pressure will also play a role as rival HR platforms look to provide equivalent value. In time, Clair may be able to blanket the market with on-demand services, presenting the chance to achieve something much more significant than pure financial success. It has the potential to renovate a decades-old default and fundamentally remake how American workers are paid. While that will inevitably create massive value for investors, this would be a lasting, profound legacy. 

Solving new problems

Aditi Maliwal described payday loans as the financial equivalent of "urgent care." This type of lender is suitable for the direst of circumstances but shouldn't be the de facto choice. Maliwal noted that Clair, by contrast, is "your long-term medical care provider." It helps guide you toward enduring financial well-being. 

This dichotomy makes sense today but should evaporate over the next few years. Clair can still serve as the worker's GP, but there's no reason to think it can't also provide a better urgent care alternative. The team seems to be thinking about this already, noting that the data it collects will enable it to underwrite larger loans. Looking to buy a car or even a home? It's not farfetched to think that Clair might be well-positioned to provide such support for a meaningful percentage of the population. 

Acting like a true bank

One of the ways Lance Katigbak described Clair stuck with me: "We're a digital banking platform that's competing with on-demand payment providers."

In less than a dozen words, Katigbak captured Clair's fundamental differentiation. He also gestured towards the company's future. Ultimately, Clair acts like  a bank. It's just one that's started with a different first product and go-to-market motion. When we think of what it might look like over time, we can look to more mature businesses in the space. Could Clair provide insurance as part of its offering? What about investing? 

We can imagine versions of such products tooled for Clair's audience: the worker. Given its partial focus on 1099s, perhaps the company could offer sick-day insurance or portable benefits through partners. Maybe Clair will be where many Americans invest in their first index funds, putting the money they earn to work. While Clair doesn't need to touch any of these areas to be a substantial business, it is also not impossible to envision a future in which it is a fully-featured bank for America's workers. 

One of Clair's partners told me about a sales call they'd heard. The manager of a senior care facility was explaining how hard it had been to staff shifts. The national labor shortages made it hard enough, but the pay cycle was truly thwarting the facility. No one could afford to come to work. Without money coming in, shift workers couldn't spare the $20 it cost in gas. For a period, working put them deeper into the hole. To compensate, the senior center's manager had started paying for her colleagues' gas money out of her own pocket, even though it hurt her financially. 

This is just one example of how our current wage cycle causes real pain. Senselessly, millions are pushed into financial instability over nothing so much as timing. Money that has been rightfully earned is trapped in limbo, acting as an interest-free loan for Fortune 500 companies at the expense of their employees. We endure it only because we are inured to it, blinded by its commonness. 

That Clair has devised a remedy to such an intractable problem in which everybody wins is a feat of innovation. If it succeeds to its full potential, in a decade, instant payment will become the rule rather than the exception. 

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