New York City-based FinTech startup Clair has raised $4.5 million in seed funding to disrupt payday lending schemes and help gig workers and freelancers get paid instantly.
The funding was led by Upfront Ventures. Additional investors included Founder Collective, Walkabout Ventures, former Venmo COO Michael Vaughan and Seamless Founder Paul Appelbaum.
“We are thrilled to be one of the only sources of free capital for America’s hourly and gig workers,” Nico Simko, co-founder and CEO of Clair, said in a statement on Friday (Oct. 9). “We believe that everybody should be able to freely access money they’ve already earned.”
He added that payday lenders charging exorbitant interest — often more than 300 percent — outnumber McDonald’s. There are currently more than 82 million hourly employees and 57 million gig workers in the U.S.
People who use Clair for direct deposit can get free advances on a percentage of their wages.
The pandemic has triggered a tidal wave of unemployment filings, and more than 40 percent of Americans have stated that they would have a hard time coming up with $250 for a surprise expense. A 2019 PYMNTS report indicated that the majority of gig workers would jump platforms and work more in exchange for faster payments.
“We are excited to back a social impact-driven FinTech with a sound business model. Many FinTechs that we’ve seen often struggle with profitability because their customer acquisition costs are so high,” says Aditi Maliwal, Upfront Ventures partner and Clair board member. “We think Clair’s strategy of creating a product embedded in other services that workers already use today is one that will set them apart in the long run.”
The crackdown on payday lending has been in the works for years, but nothing concrete has yet disrupted the industry in a way that would benefit consumers. The U.S. Consumer Finance Protection Bureau (CFPB)n released regulations in 2017 that are now being readjusted. In July, one rule was removed that restricted the amount that lenders could give borrowers based on their ability to pay.