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The financial system doesn’t work for the majority of Americans
It goes without saying that the current pandemic has unleashed unprecedented economic devastation. But even before COVID, most Americans were already struggling: 78% were living paycheck to paycheck and more than half had a poor credit score or no score at all. Without access to affordable financial products, they resort to predatory ones like high-interest credit cards, payday loans, and overdraft fees to make ends meet. After the short-term relief, these predatory products ultimately push people further into deeper cycles of debt. Economists predict darker days ahead, making a more equitable financial system and fairer financial products more important than ever.
Payroll systems are the secret lever to driving change
Most people’s money can be traced back to a payroll system (e.g. ADP, Paychex, Gusto, etc). In fact, 82% of Americans get paid via direct deposit from a payroll provider. This makes payroll systems incredibly powerful because they sit at the top of the financial stack, with the controls that determine where your paycheck goes and how it gets split up before anyone else has a say. In a world where banks are fighting over customer deposits and lenders are looking for any way to lower default rates, giving consumers easy access to those controls can help them use that position to their benefit.
Payroll systems also harbor a wealth of income and employment data, making them tremendously valuable to just about every financial institution, especially for streamlining underwriting or approval processes. Whether it’s getting a mortgage, leasing a car, or renting an apartment, income and employment data are the lifeblood of people’s financial lives.
Unfortunately, the payroll ecosystem is largely closed and highly fragmented, disconnected from the banks, lenders, and service providers that could benefit from access to it. By building the pipes that aggregate and unlock these payroll systems, we can help consumers access better, cheaper financial products when they need them most while also sparking innovation of new financial products.
Pinwheel is the first API for payroll
Today, we’re excited to announce Pinwheel, the first API for payroll. Pinwheel provides the SDKs and APIs that make it easy for any user to connect their payroll account to any app. But more importantly, we exist to build a more equitable financial system by unlocking access to payroll systems. Although there are limitless possibilities, we’re currently focused on three key use cases:
- Paycheck-linked loans — With PLLs, borrowers can opt to have lenders collect payment directly from their paycheck, essentially guaranteeing that the latter will be the “first money out.” This higher accountability model means lenders significantly de-risk their loans while consumers, especially those with bad or no credit, can finally access fair interest rates.
- Seamless switching of direct deposit accounts — Since most banks and financial institutions rely on an “assets under management” revenue model, their holy grail is to have customers switch their direct deposits from competing banks to their own. The current switching process is super high-friction, usually requiring employees to fill out a paper authorization form or navigate a clunky employee portal. Pinwheel takes the friction out, allowing users to switch their direct deposits with just a few clicks, giving them greater agency over their financial lives and driving liquidity in the consumer banking world.
- Instant & secure income & employment verification — Even in 2020, most people still have to submit paper pay stubs or tax documents every time they need to substantiate their income and/or employment. This takes forever to process, gets expensive because of human intervention, means data is not stored securely, and the experience is high friction for everyone involved. Pinwheel addresses all four of those problems by providing an instantaneous, cheap, secure, and seamless solution.
Developers can integrate Pinwheel into their app with just a few lines of code. Once our SDK is initialized, users see an authorization modal where they log into their payroll account to grant read and write access to the consuming app. Pinwheel then takes care of the rest, making the necessary direct deposit changes or capturing the requisite account data. We never share users’ payroll account credentials with developers and all data is safe and secured with encryption.
New funding to realize our vision
We’re incredibly excited that we’ve raised $7M in seed funding from world-class investors at First Round Capital, Upfront Ventures, and Wonder Ventures, with participation from fintech leaders like Adam Nash and Michael Vaughan. Their guidance and mentorship has been invaluable in building the foundation of this business and we eagerly look forward to working closely with them to fulfill our vision.
We’re live with early banking and lending partners and opening the doors to more. If you’re inspired by our mission or just interested in learning more, please reach out to us. You can also follow us on Twitter and LinkedIn.
