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Money Power

Paying employees as soon as they clock out of a grueling day of work seems like science fiction, but it shouldn't. That's why we invited Nico Simko, founder & CEO at Clair, a company who helps employees get paid as soon as possible to the podcast. Nico's also a Forbes 30 Under 30 and a Harvard grad. Founded 2019, they've raised $194.6M, and have 80 employees. But while it's as common sense idea, it's not without its detractors, including those who claim businesses like his are just a payday loan scam preying on the poor and desperate. So, an invaluable tool to improve retention and solve the problem of absenteeism, or the devil? You decide.


PODCAST TRANSCRIPTION


Intro: Hide your kids, lock the doors, you're listening to HR's most dangerous podcast. Chad Sowash and Joel Cheesman are here to punch the recruiting industry right where it hurts. Complete with breaking news, brash opinion, and loads of snark. Buckle up boys and girls, it's time for the Chad and Cheese podcast.


Joel Cheesman: Oh yeah, it's Lenny and Squiggy's favorite podcast, AKA, the Chad and Cheese podcast. I'm your co-host, Joel Cheesman. Joined as always, the Laverne to my Shirley, Chad Sowash is in the house and we are welcoming Nico Simko to the show. He's founder and CEO at Clair, a company with a radical idea, getting your paycheck the minute you clock out of work. Nico, welcome to the podcast.


Nico Simko: Thank you so much for having me.


Chad Sowash: Nico Simko, tell me a little bit about that name.


Joel Cheesman: It's his rap name.


Chad Sowash: Nico Simko. Yes.


Joel Cheesman: Nico Simko to the stage.


Nico Simko: So I was born Nicolas Simko, but I felt that Nico Simko was, it rhymes. It's easier to say, it's short. It usually when you put it on a slide, you don't have to go to the line if you put it as Nico.

Chad Sowash: So branding, this is all a branding thing.

Nico Simko: This is all a branding thing.

Joel Cheesman: So Nico, a lot of our listeners don't know you. A lot of them don't know the company. We'll get to the company, a second. Let's dig into you for a little bit. What makes Nico click?

Chad Sowash: Deep, dark Secrets Nico, bring it.

Joel Cheesman: Great taste in eyewear, by the way. Great taste in eyewear.

Chad Sowash: And if you would, talk into the microphone, that would be helpful too.

Nico Simko: I will try. I have to look in the distance. I have to look in the distance sometimes. Be like, what, how am I gonna answer this question?

Chad Sowash: Just look into Joel's eyes.

Nico Simko: Exactly. No, honestly, what makes me click is, and it's gonna sound really boring, but it's really true. It's the people. It's always about the people. If you asked me what I would put on my Twitter bio, that's what it would go. It's the people. It's the people. That's it.

Joel Cheesman: It's not sexy, but it's an answer.

Chad Sowash: And because people are stupid. I mean, come on, let's say you say people are stupid. So what about the people, about bringing them along, around shepherding them, around patting them on the head. I mean what?

Joel Cheesman: Let's go deep.

SFX: Just the tip

Nico Simko: Look, we are fully social animals and we are not like normal animals. What we like to do is do things together and I think that that's one of the things that for me gets me to click. It's when you can work with a team on a really cool, ambitious project. It's when you've had a really long day and you're at home and you're decompressing around a beer with a bunch of friends. It's when you go...

Chad Sowash: That's more fun, yeah.

Nico Simko: You get on a plane. Exactly. You get on a plane and you go to somewhere you've never been before and people do things very differently than you did growing up or where you currently live. It's the people.

Joel Cheesman: In Nico's defense, we pulled him out of his high school Econ class for this interview. So he hasn't had a lot of life experiences. So people is what he's got and what he's going for. I will add, he's being humble. You were a Forbes 30 under 30, you're a Harvard graduate and your undergrad was in Geneva of all places, correct?

Nico Simko: Well, my high school was in Geneva, but I went to Harvard University for college. Yes.

Joel Cheesman: There you go. Alright, enough about you.

Nico Simko: Okay.

Joel Cheesman: Let's get into the company. And quite frankly, one of the hottest trends in employment is this whole daily pay thing, this pay on demand. So talk about the company, the genesis. How did this thing get rolling?

Nico Simko: Yeah, I'm gonna give you guys a two second gist. Can pay your friends in two seconds through Venmo, through Zelle, through whatever you want. Why can't you do this with your paycheck?

Chad Sowash: Good question.

Nico Simko: That's it. That's the story of the company.

Chad Sowash: So why is it that companies haven't moved to this methodology already? I mean the technology, it's not like the technology's not available, it's not like all these different platforms, these human capital management platforms don't have payroll systems in them. So why is it taking so long for people to get paid? Because companies like sitting on the capital and getting the interest? I mean, what is it? Is it just that easy?

Nico Simko: There's two fundamental things. If a business today wants to pay their employees immediately they're gonna face two issues. One, go to a restaurant, swipe a credit card, pay someone. That money's not gonna get into their bank account for the next two, three, four, five days depending on if it's on a Friday, if there's a holiday, whatever it is. It's gonna take time for that money to get into a bank account. So basically the business has to suddenly go and raise capital somewhere. If they're not doing that, then actually money that you owe for payroll is really great money management and treasury management because you delay your account payables and so there's no real financial incentive for the businesses to do it.

Nico Simko: The second issue is the tax code. Most people in America are paid what we call W2, which is they get a paycheck in the mail and then they think their paycheck's gonna be high, but it's always lower. Why? Because there's a lot of taxes and deductions and all of this. That makes running payroll actually pretty complicated because you have to calculate all of these things, you have to account for them. It's not a very straightforward process. And with that, with the tax component is that the money doesn't travel immediately. Now, that might change with real-time payments, but still, if an employer wanted to do it, they're gonna still face the two issues, which is they have to calculate the taxes, these taxes can change. And in addition to this, somebody needs to front the capital.

Joel Cheesman: And I assume you guys solve this problem.

Nico Simko: Exactly.

Chad Sowash: How often do the taxes change where you have to fix this formula all the time? It's not always a moving target, is it? Is this like an annual, quarterly? I mean why is this a problem?

Nico Simko: It is a problem because there are things that always pop up. If you take the average worker, they will not work a fixed salary job. They will work an hourly job. If you take the average worker, they will take overtime. If you take the average job place, the hours need to be confirmed by the manager in order for this to be calculated, the manager has to confirm that those were overtime hours. They need to look at the latest list of how much is that overtime calculated for.

Nico Simko: If you're working in delivery, there are laws around the idea that if it's more raining that day than another, then you should owe the person a bit more money. Those things add up to the complexity where operationally for business, it's better to do this every two weeks than to have to sit down every day and actually confirm that all of that is done. I agree, AI, a lot of technology can help with it, but it's still really complicated.

Joel Cheesman: Do you guys solve that for them or are you just the financial sort of, do you guys loan them the money and they pay you back? Do the employees, is this a payday loan thing where they're on the hook for the money? Talk about I guess the backend stuff of this 'cause it sounds a bit complicated.

Nico Simko: We advance the money to the consumer based on the data that we have from the employer. Because what we wanna do is say, look, employer, you wanna offer this, but you don't wanna deal with it. That's kind of every employer we talk to, that's what they tell us. And so we work backwards from the person who runs HR at an average business was like, I would love to give this to them, but look at the stack of work I have to do. So how do I do it simply? So we will front the money to the consumer. We will, all we want is the data so that we can make an underwriting decision. And then the employee repays. Now we don't charge any fees when they sign up for a bank. And that's the only way today that they can advance the money they need to sign up for a bank, put the direct deposit there. So it's basically a micro loan you give to consumers that they repay at their next paycheck without any fees. That's basically the product.

Chad Sowash: So how do you get paid if there's no fees?

Nico Simko: Brilliant question. What we do is we sign them up for a new bank, they put their direct deposit there and then we give them a card. It's a cute little blue card that employees can use in order to pay for certain expenses. When they do, let's say they go to Trader Joe's here in New York.

Joel Cheesman: They're going to Chipotle.

Nico Simko: Perfect, Chipotle. That makes even more money for us. That's great. So basically Chipotle, they buy a burrito, they get the extra guac, it costs them more than they thought. So it's $13 or $14. We are gonna receive approximately 1, 1.2, 1.3% of that transaction is gonna go back to MasterCard and MasterCard is gonna give that back to us. This is a relationship between Chipotle and MasterCard. It's just that we have an agreement with MasterCard because with the program manager, that we get most of it back to us and that's how we make money.

Joel Cheesman: Are you a debit card or a credit card? Or is this a...

Nico Simko: A debit card.

Joel Cheesman: Okay. The company's paying you for the fee of the transaction and if they try to overspend what they have, it's like, sorry, no burrito for you, basically, just like with a...

Nico Simko: No burrito for you.

Joel Cheesman: Credit card.

Chad Sowash: That's a sad day. Cheesman.

Nico Simko: But the story is this, is that when I talk to a bunch of hourly workers, their feeling was this, look, I'm at the gas station, it's the 28th of the month, I've started paying some bills, my credit card bill and all of that, and I'm two, three days away from my paycheck arriving or sometimes it's five, six, seven, depends, and I'm at the gas station, I swipe my card and it denies, the card's denied. And that is one of the most frustrating and most painful experience you can think of. You're at the gas station, you need gas to get home. How do you do it? It has happened to many, many, many people out there. And the idea was like, hey, you've actually made a loan to your own employer. Why do I call it this way, is because you've worked and they owe you money. You're lending to them.

Nico Simko: So why can't you just pull 20, $30 to get gas in the car and keep going? And that particular use case is where we said, oh my God, we're about to build the biggest financial institution in the country because we're gonna give free advances to people. On top of that, there's gonna be a great card and people are gonna love us for it. We're aligning our incentives. We're not trying to kick them when they're at the bottom. What we're trying to do is actually be there. Oh my God, this bank was awesome. Let me tell my friends. They should sign up for it because it's... And that's where the idea of Clair came up.

Chad Sowash: So let's take a look at the entire kind of structure. So these are individuals who, at the end of the month, they need that cash. And we do know that at least a third of the population at the end of the month, they need that cash, right? Less than $1000 in their account at any time. So what's the incentive for anybody, let's say, for instance in the middle stack? I mean, I don't need the money, I've got more in savings. Is that actually an addressable market for you? And I'm asking that because there are some major Fortune 500 companies who employ those people who could easily obviously start using a service or a system like yours pretty quickly I would assume. And that would be a great benefit to any individual who's coming in.

Nico Simko: Completely. We have people on our application that signed up for the bank, never took a wage advance. And when those cohorts three or four years ago started coming in, I went in our database and I just texted one of the user and I said, Hey, would you be willing to get on the phone with me for 20 minutes? Half of them thought there was a scam. So it took me a while to get onto the phone with someone. 'Çause like, why is the CEO of this company calling me? And honestly, I got on the phone with them and after one or two phone calls, some of them were not really fruitful. Somebody told me, was like, Hey Nico, the reason why I signed up for Clair is because I don't need the money every day. Most workers don't want the money every day.

Nico Simko: That's what she told me. But knowing it's there makes me feel more financially free. And that became our mission. Make America's workforce feel financially free. It's not about you taking advances. We do not track that. An investor asked me on a board meeting, so how often do they take advances? I just actually don't know because what I care about is are they actually happily banked with us? And for us, the feature of getting your money right now is the free thing we give you so that you know can feel better at night. That's really, really...

Chad Sowash: But using the card is how you guys get paid though, right?

Nico Simko: Correct.

Chad Sowash: I mean, at some time they have to use the card. So I would assume, and I'm sure you take a look at this because this is your revenue stream.

Nico Simko: That we look at.

Chad Sowash: When you take a look at actual users or percentage of the actual user base on a monthly basis, how often do they use their cards just in an average?

Nico Simko: So on average, people will spend 80% of their paycheck on the Clair card. So we are their primary bank account. That for me is success, is that they trust us enough when they pull the card out of the wallet, they're like, that's the bank that I want. Although we're partnered with a bank, we're a financial technology platform on top of it, it's FDIC insured, they're called Pathward. But they really feel like the banking solution they get out of us is holistic enough that we're their primary choice.

Joel Cheesman: Do you guys offer any interest on those accounts or not?

Nico Simko: We do. We have a savings account we open before we advance any money to people because we want them to save. And so we give APY, it changes with the market changing. I don't exactly know what it's at right now, but it's correlated to what the Fed funds rates are at.

Joel Cheesman: It can't be worse than Chase. It can't be worse than Chase. On the tax side. I'm curious. So when you work as part of the waitstaff of a restaurant, obviously you get $2 in whatever it is an hour and then you get tips on top of that. The company gives you your tax information in terms of your annual salary and then you have to report the additional tips. Does the company give you your tax information in regards to your hourly salary in this situation? So basically I have to keep tabs on, save enough for taxes. The company doesn't do it for me. Walk me through the tax situation as a worker.

Nico Simko: Yeah, yeah. So this is the beauty of our system, this is where we add a lot of value, is that we remove that away from both the employer and the employee. What we'll know is, let's say, go to a restaurant worker again, I'll use your $2 an hour plus, the rest is tips, we'll know that this person makes $2 an hour. We know because of how much data we have that there is a 99% probability that giving them a dollar per hour, call it, is completely fine. And it's like we will get our money back, we will give them a dollar per hour. Now, luckily most employees will not be making $2 an hour. They'll be making seven, 15, 20, $25. So they're making more per hour. But that's the value of our algorithm is that now that we're at thousands of workplaces is we can analyze this data and get it as close as we can without taking any credit risk.

Chad Sowash: And you will be able to actually provide spending habits for the entire American population who are using this card. You know when the dollars hit the bank and you know what's being bought pretty much right after those dollars hit the bank. To be able to have that data and as we take a look at generative AI and whatnot, being able to crunch that kind of data to be able to provide the kind of spending patterns back to the market, this seems like a play more for data and understanding the consumer market than it is even on the pay side.

Nico Simko: That is exactly why I believe that, sure, getting your money as quickly as possible is an enormous product and we're doing it well, it's what I live for, but we're actually building the best financial institution in the country. Because what you're talking about here is you're marrying your bank to all of the information you have at work. So I can give you a list of products that do not exist today, but that could exist. One of my favorite examples today is I take the subway here in New York and I go to work. That is a pre-tax event. That is something that technically the tax code allows you to do as a pre-tax event. Why are we going to work? So there's tax... You will get tax rebates. Why can't I get that cash back immediately? Why can't I just swipe and says, oh great, we've connected all of that back to your payroll.

Nico Simko: You get 10 cents back on this transaction. Why can't you actually, instead of taking wage advance, you say, please make my unpaid payroll a collateral account and then help me use that to increase my credit score. Why? Because you're like, look, I'm working my hours, my money's aside, now can I use that as a proof that I'm gonna get paid? You can get your credit score. You didn't do anything. You just went to work and your credit score goes up. There are products today that could help America's workforce get so much more ahead financially of where they are that today don't exist because the banks don't marry to your workplace.

Chad Sowash: Okay, that's just a mind-blowing scenario right there. Because again, again, you're working on the base of allowing people to get money right after they've rendered services. I mean that's what it comes down to, right? When you go and you go into a store and you have somebody sharpen a saw or something like that, you pay for rendered services, right? This is exactly what you're talking about is I go to work on a daily basis, I've rendered services, therefore you pay me, right, then. Then I go and spend money or wherever it might be. You're gonna have access to all of the data to where that money has been spent from a spending habit standpoint. Not to mention, as you had said, which goes above and beyond, you know all the people who actually came through into, took the subway system, whatever, they came into work, they did work. And then there's the tax incentives that actually go back to the companies. So I mean there's a huge reason why a company would want to use this because they have proof that here's my workforce, here's what my workforce did, now give me my tax incentive money.

Nico Simko: Exactly right.

Chad Sowash: So there are so many different avenues of approach for you to actually use this data. Then you can actually go back to the US, the BLS, any of those departments who want data on spending habits and workflow, so on and so forth. This is exciting just from a data standpoint.

Joel Cheesman: So Chad is super excited.

S?: Alright, alright, alright.

Chad Sowash: Super excited.

Joel Cheesman: Let's look at some of the other things benefits companies get from this 'cause I got to imagine asking them to change the way they've done things forever is not easy. There are a lot of research out there and posts about absenteeism and retention improvements with a system like this. Can you talk about any data that you're seeing in terms of companies having people show up to work and not ghosting them? Anything around that that you can share?

Nico Simko: We have seen that with Clair, you have 1.5, 2x more people applying for a job. I was in the subway this morning. There was a company, I don't think they work with us, but they listed why you should come at work. The only one that was bolded is get paid daily. I think people have realized that getting your advance, getting your money as soon as you finish work, which by the way, it sounds so simple to say, I have no idea why I had to start a company in this space. I feel like this should have been solved 20 years ago. I'm serious. And so I'm like, great. Somebody left this opportunity for somebody to jump in, but what the hell happened to society that nobody thought about doing this before? And so that increases people wanting that job.

Nico Simko: The second thing is people, I've heard anecdotal stories and I don't know how this transform into data. I've had an employee tell me in one of the user research I've had, he's like, look, Nico, I signed up for Clair because I work at this restaurant. I won't pass the name of the restaurant. And I used to be sick at the end of the month and go drive Uber. And I said, why?

Joel Cheesman: He put air quotes in there for the listeners.

Nico Simko: Exactly. He told me, he was like, look Nico, I kind of just wanted to make the money right now because it gets tight at the end of the month. And then I saw this and I was like, okay, I'm not gonna call sick anymore. And he was like, I picked up more shifts and he gave me an incentive to pick up more shifts.

SFX: Oops, winning.

Nico Simko: And then I met a nurse who was in the suburbs of Chicago and she was telling me this story. She was like, look.

Joel Cheesman: I like where this is going. He met a nurse in Chicago.

Nico Simko: We were launching the product, we had the cards on site.

Joel Cheesman: We know where this goes.

SFX: What are you doing, step bro?

Joel Cheesman: Sorry, continue.

Nico Simko: Thankfully, no. So she basically was like, I had a job offer to go somewhere else across the street and to make 50 cents more per hour, which was a big deal for her. She was an assistant nurse and she told me, look, I didn't take the job because I knew that knowing I could get my paycheck at any point gave me more financial stability than a 50 cents increase. So you retain your workers a little bit longer. Now I'm not gonna be around and be like, I know exactly the number it's gonna be at your exact workplace of retention. No, no, no, no. I'm not in that business because I think it varies a lot business by business and it's hard for me to give a number. But I think the facts and the qualitative facts are there that these products are very needed for the workplace and for employers.

Joel Cheesman: So Nico, this industry is not without its critics and its regulations and government interference. So Nevada and Missouri are two states that have implemented or introduced laws where you have to be licensed and you're into more of what's going on. So explain what's going on there and you simply have a lot of people pointing the fingers that this is sort of a payday loan thing, DailyPay, one of your competitors on Trustpilot. And not that that's not the be all end all, but it has one star out of five, 600 something reviews. People don't like the service. I don't know if that's the company or the actual what they're doing. So talk a little bit about the government regulations and some of the customer or critical opposition that you're getting to the business, fair or foul.

Nico Simko: Look, when we started this business, it wasn't clear whether this was a loan, not a loan. I love the duck test. Not sure if you guys know what the duck test is, but if it looks like a duck.

Joel Cheesman: Oh, duck, duck.

Nico Simko: It walks like a duck, swims like a duck, sounds like a duck, what is it?

Joel Cheesman: It's a duck.

Nico Simko: It's a duck.

Joel Cheesman: Yeah.

Nico Simko: And so whenever I would just talk to any lawyer, I'd say I would like to advance money to people based on payroll data and then for them to pay me back once they get paid. And they were like, that sounds like a loan. And every single time it was the same. So I was like, well, but everybody else doesn't call it a loan. And it seems like there are states that decided this is not a loan. And so they're like, okay, you do what you want, but this looks like a duck again. And so I sat down and I said, Hey, if I am fresh and new to this, at least from a compliance perspective, and everybody's pointing to the fact that this looks like a duck but everybody wants to ignore it, I said there might be defensibility here, there might be something that really sets us apart.

Nico Simko: And so I understood why calling it a loan was actually complicated. It's because it costs a lot of money. You have to create a consumer lending program, you have to get licenses in most states, you have to get audited by most states. You have to, not only, some states require three licenses, not only one, you have to apply for each of them, you have to maintain them, you have to have an internal compliance and blah, blah, blah, blah, blah. I can keep on going. And so I said, well, we're gonna do it. And so I went over to the investor and said, I have two options. I can do this in a way that is like, I'm pretty sure it's gonna be fine because there's laws attached to it that have been there since the Truth and Lending Act in the '70s. So we had to do it this way. Or we go cowboy. And we're like, we hope all the states are gonna agree that this is not a loan, might happen. And we decided to go the more conservative route. And so that really helped us from a business development standpoint. But it's still a debate out there, it's still a debate.

Chad Sowash: Well, I mean at the end of the day, we're taking a look at the prospect of, which are out there today in some states, not all states, predatory payday loans, which used to be against the law, but they're not in some states now. But what you're saying is this is not a, we give you $20, you give us 40 when you get paid scenario, you're not getting paid a vig off of the dollars from the actual consumer/worker. You are making that money through transactions via MasterCard.

Nico Simko: Exactly. That's exactly right.

Chad Sowash: I can see where obviously some would want to know more because there are a lot of predatory shit that's out there.

Joel Cheesman: It sounds too good to be true.

Chad Sowash: Oh yeah, it does sound too good to be true until you start to get deep into the actual data play and the understanding of how the monetization works. And that's the big key. So have you been talking to legislators about this and how long did it take for you to actually educate them for them to understand that this was not something that was bad for workers?

Nico Simko: We've never charged at Clair, fee for a wage advance. I think, look, when we talk to consumers, many of them don't want Clair because it requires them to get a new bank account. So consumers sometimes say, Hey, I just want this once. I just want to pay three bucks and get it right now. And it's the best thing. So I get why as theoretically in the market this should exist. And I think it's the right thing for consumers. We just for the past years, never charge a fee for this. 'Cause we're like, we wanna be a bank. Wanna be a big financial institution in the future. Yay. It's like, let's go for this big dream. And when we talk to legislators, we are a very funny horse because we're like, Hey, we went overboard on licenses. I come with a truckload of them and I did all the work.

Nico Simko: And by the way, I've never charged a fee. So they're like, you never did the fee thing and you got all the licenses. Who decided this? Because it doesn't make much sense. But the reason why we did it, and the reason why I think it makes a lot of sense is because it protects us from a compliance perspective and we're doing the right thing for consumers. That's it. I just don't want to deal with some states some days having a debate and now I need to go with everybody else in the group and go tell them why... I have other fish to fry. I have a business to build. So let me pay the bill once, get all the licenses and then move on.

Joel Cheesman: You had me at Chipotle.

SFX: Oh my God. I want chipotle. Chipotle.

Joel Cheesman: Oh, that is Nico Simko, everybody. Nico, for our listeners who wanna know more about you or the company, where do you send them?

Nico Simko: Getclair.com. That's G-E-T-C-L-A-I-R.com.

Joel Cheesman: Thanks. And we'll let you get back to Econ class. We appreciate your time. Chad, that's another one in the can. We out.

Chad Sowash: We out.

Outro: Thank you for listening to, what's it called, the podcast, the Chad, the Cheese. Brilliant. They talk about recruiting, they talk about technology, but most of all, they talk about nothing. Just a lot of shout outs of people you don't even know. And yet, you're listening. It's incredible. And not one word about cheese. Not one. Cheddar, blue, nacho, pepper jack, Swiss. So many cheeses and not one word. So weird. Anyhoo. Be sure to subscribe today on iTunes, Spotify, Google Play, or wherever you listen to your podcasts. That way you won't miss an episode. And while you're at it, visit www.chadcheese.com. Just don't expect to find any recipes for grilled cheese. It's so weird. We out!

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