Fintech firm ZayZoon raises $34.5 million in Series B

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Fintech firm ZayZoon raises $34.5 million in Series B

The fintech firm ZayZoon, which started charging employees $5 to get paid ahead of time, has raised $34.5 million in a Series B round co-led by Framework and EDC with participation from ATB Financial.

The funds, which brought ZayZoon's total to $53 million, will be put toward 'doubling down' on ZayZoon's growth and accelerating the development of new features on its product roadmap.

In 2014, Tuer co-founded ZayZoon in Calgary with Tate Hackert and Jamie Ha. Tuer and Hackert, both serial entrepreneurs, came on to scale Hackert's initial proof of concept, and Tuer and Hackert met Ha, an investment banker, at a local startup event that ZayZoon was participating in.

Years before meeting Tuer and Ha, hackert had the idea for the business. After earning money working on a commercial fishing rig, Hackert, then 16 years old, lent cash through Craigslist and the Canadian classified ads site Kijiji to help employees bridge the gap between paychecks.

ZayZoon falls into the category of earned wage access, which operates on the same premise as a fintech. If employees request a portion of their regular pay, they can request a portion early from ZayZoon. Employees can withdraw a minimum of $20 and a maximum of $200 each pay period at ZayZoon.

The company ZayZoon and other EWA firms are trying to help customers avoid high-interest loans and credit cards. But the reality is often less rosy than their marketing suggests.

Some consumer groups argues that EWA programs like ZayZoon's should be labeled as loans under the U.S. The Truth in Lending Act provides protections such as require lenders to give advance notice before increasing certain charges, which are protected by the Truth in Lending Act. ZayZoon's users aren't legally bound to repay their debts, and ZayZoon won't take any action to collect payments.

The no-fee option of ZayZoon is available for free withdrawals. However, it requires employees to accept payments in the form of gifts cards for retail partners like CVS and Target and to share their personal information, such as their name, date of birth, gender and address, for advertising purposes.

There is a $5 per-pay-per-period fee that may not sound like a lot. But it can add up - especially for a low-income worker - and the consequences can be disastrous. The study, published in February 2020, found that $100 fewer in savings can make families more likely to pursue predatory lending and forgo utility bill payments. An estimated one-in-five families in the U.S. has less than two weeks of liquid savings.

ZayZoon, like its rivals Refyne, Branch, DailyPay and Even, claim that they are a retention tool for businesses. But it remains uncertain whether EWA programs are a net positive for companies. Walmart, for example, had high hopes of boosting employee engagement by giving employees access to earned wages early. The study found that employees who used the early wage access service tended to quit faster.

EWA usage is increasing, regardless of whether you're using it or not. In 2020, workers accessed $9.5 billion via EWA apps, up from $6.3 billion in 2019, and $3.2 billion in 2018, according to a 2021 report from research firm Aite-Novarica.

As their popularity among workers - especially those with lower credit scores - grows, regulatory authorities are beginning to step in. Nevada has passed a bill in June that requires early wage access providers to be audited and examined by the state. The following month, Missouri passed a law that requires EWA companies to register with the state, pay a $1,000 registration fee, and retain payment records for a minimum of two years.

With 102 employees, ZayZoon, one of EWA's larger startups, is not letting the increased scrutiny get in the way of expansion.

Tuer, who has served in the U.S. marine corps, said he would not comment on the outcome of the presidential election.