ZayZoon, a fintech firm that started charging employees $5 to get paid early, has raised $34.5 million in a Series B round co-led by Framework, EDC, with participation from ATB Financial.
CEO Darry Tuer says the funding, which brings ZayZoon’s total to $75 million, will be used to “double down” on ZayZoon’s growth and accelerate the development of new features on its product roadmap.
“ZayZoon is on a mission to save 10 million employees 10 billion dollars. We will achieve that by relentlessly focusing on helping employees who are struggling to make ends meet,” Tuer told TechCrunch in an email interview. “At the same time, small and medium-sized businesses face their own financial challenges and struggle to recruit talent. ZayZoon helps employers reduce recruitment and turnover while keeping employees away from predatory loans and unnecessary bank fees.
Tuer co-founded Calgary-based ZayZoon in 2014 with Tate Hackert and Jamie Ha. Tuer, a serial entrepreneur, came to measure Hackert’s initial proof of concept, and Tuer and Hackert met Ha, an investment banker, at a local startup event. ZayZoon was involved.
Hackert had the idea for the business before meeting Tuer and Ha. After earning money working on a commercial fishing rig, Hackert – then 16 years old – paid cash through Craigslist and the Canadian classified ad site Kijiji to help cover the wage gap.
In the nearly ten years since its inception, Tuer claims ZayZoon has become the fastest-growing app of its kind, gaining more than 10,000 business customers across the US and partnering with more than 160 payroll providers.
“ZayZoon provides employees with access to their earned wages instead of waiting until payday,” Tuer said. “This helps them avoid paying off payday loans or dealing with unnecessary bank fees.”
ZayZoon falls into a category of fintechs known as Earned Wage Access (EWA), which largely operate on the same premise. For a fee — in ZayZoon’s case, $5 — employees can request a portion of their regular paycheck early. ZayZoon allows employees to withdraw a minimum of $20 and a maximum of $200 per pay period.
ZayZoon and other EWA companies build their products to help consumers avoid high-interest loans and credit cards. But the reality is less rosy than their marketing suggests.
Image Credits: Zayzun
Some consumer groups argue that EWA programs like ZayZoon’s should be classified as loans under the US Truth in Lending Act, which provides protections such as requiring lenders to give advance notice before raising certain fees. Users are under no legal obligation to repay ZayZoon and ZayZoon will not take action to collect payment. But because ZayZoon automatically withdraws money from users’ linked bank accounts, it can still force users into overdrafts while effectively charging interest through its fees.
ZayZoon offers a no-fee payout option. However, employees must accept payments in the form of gift cards for retail partners such as CVS and Target and agree to share their personal information, including name, date of birth, gender and address, for promotional purposes. (Workers can email ZayZoon’s customer support to request deletion of their data, but there is no in-app mechanism to make this easy.)
A $5 per-pay-period fee might not seem like much. But it can add up, especially for low-income workers — and the consequences can be devastating. A 2020 study found that saving just $100 less could make households more likely to delve into debt and skip utility bill payments. And roughly one in five US households has less than two weeks worth of liquid savings.
ZayZoon, like its competitors Refyne, Branch, DailyPay and Even, claim to be a retention tool for businesses. But it is unclear whether EWA programs are a net positive for firms. Taking the example of Walmart, the retail giant had high hopes of boosting retention by giving employees early access to earned wages. Instead, it found that employees who used early pay access services tended to quit faster.
EWA usage is increasing regardless. A 2021 report by research firm Aite-Novarica estimates that workers accessed $9.5 billion through EWA apps in 2020, up from $6.3 billion in 2019 and $3.2 billion in 2018.
As their popularity among workers — especially those with low credit scores — grows, regulators have begun to step in. In June, Nevada enacted a law requiring early wage access providers to be audited and inspected by the state. The following month, Missouri passed a law requiring EWA companies to register with the state, pay a $1,000 registration fee and keep payment records for at least two years.
ZayZoon, which is one of the larger EWA startups with 102 employees, is not letting increased scrutiny stand in the way of expansion.
“We are in regular discussions with the institutional investment community and have decided to pursue opportunistic growth,” Tuer said. “Strengthening our balance sheet will help us solidify ZayZoon’s position as a category leader.”