ZayZoon, a startup that began charging employees $5 to get paid earlier, has raised $34.5 million in a Series B round co-led by Framework and EDC with participation from ATB Financial.
Darcy Tuer, CEO of ZayZoon, says the funds will be put toward 'doubling down' on ZayZoon's growth and accelerating the development of new features on its product roadmap.
Tate Hackert and Jamie Ha co-founded ZayZoon in Calgary in 2014, co-foundering with Tate Hackert and Jamie Ha. Tuer, a serial entrepreneur, scaled 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.
Tuer and Ha met with hackert for several years to develop the business idea. After making money working on a commercial fishing rig, Hackert lent cash to Craigslist and the Canadian classified ads site Kijiji to help employees bridge the gap between paychecks.
ZayZoon falls into the category of financial techs that, known as earned wage access, largely operate on the same premise. In ZayZoon's case, employees can request a portion of their regular paycheck early, making it possible for the corporation to pay a portion of their salary. ZayZoon enables employees to withdraw a minimum of $20 and a maximum of $200 each pay period.
ZayZoon, others of EWA, offer their products as a way to help customers avoid high-interest loans and credit cards. However, the reality is often less rosy than their marketing suggests.
Consumer groups argue that EWA programs like ZayZoon's should be labeled as loans under the U.S. The Truth in Lending Act provides protections such as requiring lenders to give advance notice before increasing certain charges. Users don't have a legal obligation to repay ZayZoon, and ZayZoon will not take action to collect payments.
The no-fee payment option is available on ZayZoon. However, it does require employees to accept payments in the form of gift cards for retail partners like CVS and Target and to share their personal information, including their name, date of birth, gender and address, for advertising purposes.
A $5 per-pay-per-period fee might not sound like very much. But it can add up, especially for a low-income worker - and the consequences can be disastrous. A $100 fewer in savings can make families more likely to pursue predatory lending and avoid utility bill payments, a 2020 study found. A reported 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're a retention tool for businesses. But it remains uncertain whether EWA programs are a net positive for companies. Walmart is an example of the retail giant's desire to boost employee morale by providing early access to earned wages. The report found that employees using the early wage access service tended to quit faster.
EWA usage is on the rise, regardless. A 2021 report from a research firm Aite-Novarica estimated that workers accessed $9.5 billion via 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 lower credit scores - increases, regulatory authorities are beginning to step in. In June, Nevada passed a law that demands that all early wage access providers be audited and examined by the state. The following month, the state passed a bill requiring EWA companies to register with the state, pay a $1000 registration fee, and retain payment records for a minimum of two years.
With its 102 employees, ZayZoon, one of the biggest EWA startups, isn't letting the increased scrutiny get in the way of expansion.
Tuer, who spoke on condition of anonymity, said: 'It's time for a re-election and a new era in the industry.