I am not the biggest fan of the ‘payday loan’ industry, to be blunt, the industry targets a section of the market that really cannot afford the services in the first place. There are many examples of customers having been set on a path spiralling out of control because they don’t have the means to pay back the exorbitant fees and interest involved in using the service.
However the industry has been growing rapidly, especially in Australia. Startups like Nimble have become massive commercial successes and now saturate many ad spots across Generation Y targeted media in order to woo us into being instantly gratified financially once, and encourage us to adopt a pattern that, left unchecked, could turn into a massive problem.
Last year, the Australian Federal Government did make some moves to help minimise some of the problems arising within the pay day loan sector, in regards to fee structures, time users have to pay back loans, and establishment costs, which are now capped. While that helps out a little in terms of people being taken advantage of by the system, it still doesn’t solve the deeper issue that the industry perpetuates.
Though it is just based state-side presently, Even, a startup founded by Jon Schlossberg, Ryan Gomba, Cem Kent, and Quinten Farmer, is looking to take market share from the very powerful pay day loans industry in the United States with what is being called a viable alternative for the demographic that pay day loan services target.
This week it was announced that Even closed a US$1.5 million round in seed funding that was led by Keith Rabois of Khosla Ventures, the same firm that led the recent US$5.5 million dollar Series A raise announced last year for Australian startup Shoes of Prey.
According to various reports, other investors that took part in the round for Even were Instagram founder Kevin Systrom (one of the Even founders was an original Instagram employee), Homebrew, Slow Ventures, Mike Krieger, Michelle Wilson, David Tisch, Adam Rothenberg, Sam Lessin,Red Swan, Andrew Fine, Zach Brock, Joe Ziemer, and Andrew Kortina.
The primary target market for Even is hourly and part-time employees that are often in the lowest earning income bracket. Schlossberg, in a post on Medium explaining why the company was doing what it is doing, stated that the reason what they were creating is so important is because, at the crux of it – it’s expensive to be poor.
saving money is, as you might expect, incredibly difficult when you barely make enough to get by. And it is even more difficult when you can’t afford the modern methods society has developed for saving money (banks), and even if you could afford a bank, most banking products aren’t available to you, and even if they were available, they don’t make sense for how you live your life and manage your finances.
And that is the problem we are solving at Even. Banks don’t serve more than 2 billion people — literally half of all human beings with jobs.
Right now, those 2 billion people turn to a fractured mountain of alternative financial services. Many of those services hurt as much as they help: in America, 51 million people spend an average of $1000 per year on things you pretty much get for free at a bank. It is expensive to be poor.
Our goal is to turn that fractured, dangerous mountain into something beautiful. A new type of bank. One that automatically manages its customers’ finances. Pays their bills. Balances their budget. Saves and invests. And at the tip of the iceberg, gives each and every customer a weekly paycheck of purely disposable income. Relieve burden, and what remains is luxury.
In the long term, while it seems that Even intends to become a viable alternative to mainstream banking, the current focus on the pay day loan industry is going to be an interesting process to watch unfold. Unlike traditional vendors, Even does not ‘loan’ per se, it rather makes sure that users get the same amount of cash each and every week so they can afford to live – the company is still in its beta phase so naturally, kinks are being ironed out. But basically the concept is that hourly and part time workers fluctuate in their earnings from week to week based on their hours going up and down. Even aims to ‘even’ things out by bringing consistency to a user’s financial situation. This means that they receive the same amount of money each week, paying back anything they may have borrowed from Even on a lower earning week – the company takes a $5 fee for its services, that’s all.
Risky business model? Absolutely. But considering research conducted by the US Government that found 77% of people said they would rather have consistency of income as opposed to more money, it will probably be a service that those currently intwined in the pay day loan vortex will consider using. Even just need to make sure they can maintain a healthy back-end operation to support those users.