Categories: Alternative Finances

Walmart Redefines The Paycheck

When people talk about the plight of living paycheck to paycheck, Even Responsible Finance CEO Jon Schlossberg told Karen Webster in a recent conversation, they usually aren’t thinking broadly enough about the problem or who it effects. When most people think about financial instability, they tend to categorize it as a lower income problem.

But the numbers, he said, tell a very different story.

According to CareerBuilder, a full 78 percent of American workers report living paycheck to paycheck, and 71 percent report being in debt. Of those who report being in debt, 56 percent report that they believe they will be in debt for the rest of their life. Meanwhile, those same workers report that they are saving less — 18 percent reported reducing their 401k contribution and/or personal savings in the last year, 38 percent reported that they do not participate in a 401k plan, IRA or comparable retirement plan, and 26 percent have not set aside any savings each month in the last year.

All of this is happening in an environment where household debt numbers have been creeping up for the last year, as have charge-offs and delinquencies. That data taken with the information Even has learned since pairing with the nation’s largest employer, Walmart makes the issue pretty clear, according to Schlossberg.

Financial management and stability isn’t a problem for some workers. It’s pretty much an “everyone problem” at its core.

The Everyone Problem Defined

Workers do different things to solve their “make it work until payday” moments, depending on their need, level of access and income. Those on the lower end of the scale will often be drawn into the highest-cost version of a solution: overdraft fees or payday loans. But further up the income scale, he said, workers who still encounter cash flow shortfalls will be pulling out a credit card, potentially with a double-digit interest payment, to solve the problem. It’s less costly, but ultimately and over time expensive for workers, and stands as a barrier to long-term financial health.

“All of the things that you can do to solve the problem of making it to the next payday makes it worse, and customers go into these arrangements with open eyes knowing that, but having no choice but to make it work,” Schlossberg noted.

That is the problem Even hopes to solve. Schlossberg and his team believe most workers want to be financially stable and well-managed, but haven’t had adequate tools to get them there until now. Even’s goal, by “sitting at the intersection of a worker’s employer with their paycheck and the user bank’s account,” is to give them the right toolbox to, first, get control of their financial lives and, second, actually get on the road to financial health.

Now, fresh off a $40 billion Series B funding round led by Khosla Ventures, and six months into its Walmart partnership, Schlossberg said Even has a clearer-than-ever picture of how wide the needs are and where the big challenges lie going forward.

How Walmart’s Results Shocked, Without Surprising

In December of last year, Even went live and online for 1.4 million Walmart employees (15 percent of Walmart total workforce), more than 200,000 of whom have signed on with the program.

“That is actually incredible, particularly when you see it compared against other benefit participation for things like 401(k), which comes in at about 3 percent,” Schlossberg told Webster.

Of those users, 75 percent check in with the app weekly, 44 percent use it daily and, on average, employees are checking in with their “okay to spend” balance twice a week. And though hourly and salaried workers use the app almost equally, the salaried workers use the app 2 percent more.

“This is a product that helps employees with the problem they have. When people are living paycheck to paycheck, you don’t have room for error, and what we have seen is people really want to make good decisions,” Schlossberg said, adding that they aren’t incapable of deciding — they just need good information to make them.

Schlossberg said he sees people engage with the app often because they are getting good information from it, which is one of the key ways that Even is looking to create value. That value, he noted, is spread across the app’s multi-pronged set of offerings for consumers. For example, Even allows users to budget, spend, save and customize their payment schedules via its Instapay platform. The app also allows workers to tap a portion of their upcoming paycheck (they are allowed to do this for free eight times each year; after that, they must pay a small fee).

Though Even has no official data just yet on how many Walmart employees have used the Instapay feature, Schlossberg noted that, overall, 56 percent of Even users had tapped that feature — and its usage is extremely consistent across demographic levels.

“We were shocked by the data because we never expected to achieve an adoption rate five times the normal for an employee benefit. But we weren’t surprised, because these are tools that everyone needs,” he said.

Now, with its new $40 million, Even can get on with building these tools to scale for more workers.

What’s Next

Though financial health can be hard to attain in real life and highly intimidating for consumers to pursue, Schlossberg told Webster, there is no great magic or mystery behind it.

“There are three steps to achieving financial health that are pretty well-known. First, you need to set a budget. Second, you need to find a way to solve cash flow problems that doesn’t create a vicious cycle of debt. And third, you need to start saving,” Schlossberg said.

However, completing those steps — knowing how to set a budget, knowing how much to save long term versus how much to keep in an emergency fund, and knowing what order to pay off debt — are not quite as obvious and can push workers out of the effort before they begin. Schlossberg noted that firms tend to fail people educationally by not teaching them how to do these things. And while banks could provide these services for consumers, he said they’d much rather charge them a lot of money to do their financial planning for them.

Even charges a subscription fee as well. On average, a user’s employer will pick up 25 percent of the tab and the user picks up the rest, according to Schlossberg. However, the fee is low. The amount can vary some, he noted, but it usually costs less than a Netflix subscription. In return for that fee, Even lets users access tools that will make suggestions about how they should spend and save — based on their unique profile. It will also help customers auto-save as they earn, so they can see their cash reserve building up every time they work a shift.

“Because we sit at the intersection of a bank account and an employer, we have a lot insight, and can help people use our tools to make the best decision about what they should do,” he said.

The next step going forward is helping more workers tap into the service through their employer, he added, which means most of the $40 million in funds will go toward building the scale needed to address the “Fortune 500 companies that are already looking to engage our platform.”

Though he didn’t offer any previews about which Fortune 500 firms might be next to partner with Even, Schlossberg noted that we should stay tuned, because we might be “surprised when they announce.” At the end of the day, he said, Even isn’t solving a problem for one type of worker, but for the 78 percent of American workers who want to be financially healthy and just aren’t sure how to begin the journey.

He added, “No matter where you look, this core problem is the same. We think if we can make a product that helps people with that core problem, they are going to use it, no matter who they are.”

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