The Bridge
The Bridge inspires founders to overcome barriers, build more efficient paths, explore new ideas, and connect with other entrepreneurs on the journey of building a generational company.
The Entrepreneur's path can be a lonely one. It doesn't need to be. Take the Bridge.
The Bridge
A better way to pay employees + the Art of Focus w/ Nico Simko, CEO and Co-founder of Clair
In this episode Justin sits down with Nico Simko, the dynamic CEO and co-founder of Clair, a trailblazing company set on revolutionizing on-demand payroll. Nico shares an inspiring narrative from his beginnings as an economics tutor to spearheading a fintech powerhouse. We uncover how Clair smartly embeds on-demand pay within HR platforms, bypassing the conventional approach of targeting employers or employees directly. Nico also articulates the challenging yet rewarding journey of building Clair into a secure and compliant fintech solution, highlighting the crucial art of maintaining focus and discerning when to say no.
As we explore the intricacies of Earned Wage Access (EWA) services, Nico offers candid insights into navigating the intricate regulatory maze. We dive deep into the significance of foresight in compliance and how strategic partnerships bolster Clair's success amidst evolving financial regulations. Nico's vision stretches beyond the present, painting a picture of a generational fintech company that could redefine employer-linked financial services. This episode is packed with wisdom for entrepreneurs eager to grasp fintech opportunities, and we wrap up with a teaser for our next episode featuring an innovator making strides in the pet tech world.
Coming up on the Bridge Round.
Speaker 1:Nico Simpko, ceo and co-founder of Clare, joins the show to talk about how Nico's job earning an hourly wage as an econ tutor led him to the insight that ultimately founded Clare.
Speaker 1:Nico breaks down the on-demand payroll space and the decision that he and his team made to build an embedded product, so basically embedding the Clare product inside of other workforce management tools versus going directly to the employer or directly to the employee in their category. And then Nico talks about his experience going from zero to one in FinTech and then how Clare approached tackling things like security and compliance when they were building the first version of their product, and also the benefits of doing that and why those investments are paying off now. And rounding it out with a couple self-reflection points on the importance of focus and the ability to say no as an early stage founder. That is always a tough thing to do when you've got a big vision and you want to take on the world. So some really great stuff in this episode, grateful for Nico's time. All right, without further ado, let's get into the show, giddy up.
Speaker 3:Assassin state of mind Hustle grind. See them dollar signs. Assassin state of mind. Assassin state of mind Hustle grind. See them. Dollar signs Way above the bottom line. Assassin state of mind. Hustle grind. See them dollar signs. Assassin state of mind. Assassin state of mind Hustle grind. See them dollar signs Way above the bottom line. Assassin state of mind. They say money over everything. Everything gauge in the game Shopping for a wedding ring, salaries, startups, crypto, stock exchange. Appreciate every penny. I can change One phone call and your life can change. What's your love language?
Speaker 1:What's going on everybody? Happy Friday. It is your host, justin VandeHei, here at the Bridge Round, where every week, we have exceptional founders on the show talking about their experiences taking their companies from zero to one. This week on the show, nico Simcoe is the co-founder and CEO of Clare, a fintech company adding on-demand pay to HR platforms. Nico's got a really great background. I was pumped to have him in.
Speaker 2:Nico welcome into the bridge round my friend. So good to be here. Thank you so much, justin.
Speaker 1:So, before we dive deep into HR and HR tech, I wanted to just also for folks that haven't met you before would love to open it up with just an intro on yourself, and if you could share a little bit about your background and would love to also, we'd start with the founding stories behind the company, so we'd love to hear the founding story behind Claire, of course.
Speaker 2:Nico Simcoe here. I grew up in Europe. My parents are partially from Argentina, so I speak a little bit of Spanish at home, and came over to the US for my studies. I thought I was going to be here for college for four years and then go back and and what happened was one. During college I was an hourly worker. I was looking for just side money and I ended up being an economics tutor. I got paid via physical check in the mail. It'll be interesting for the rest of our story.
Speaker 2:I thought it was horrible the way kind of the you know the organization was tracking my time, allowing me to take hours. It was so inefficient and I was like Venmo was starting. It was like it was just on college campuses and I was like you can pay your friends in a few clicks. People were starting to be really on mobile and like I was like why do you need to clock in and clock out out of a desktop or physical time clock? Why can't you just do this on an app? And so I got passionate about the subject.
Speaker 2:The founding of Clare, from that perspective, really started off when I was at JP Morgan. I ended up not going back to Europe. I ended up staying in the US and I covered payments companies and built actually some payment products at JP Morgan when between 2012, actually we just started between 2016 to end of 2019. And there I really learned the ins and outs of payments. We live in a phenomenal time right now where a lot of things are changing New payment rails are coming out, regulation is starting to allow for new products to also exist, and that's where the idea of Clare came up.
Speaker 2:Pretty simply put, I saw what Uber was doing with Uber money. Simple idea give drivers the ability to get paid after every ride. You could either get a new card or pay a small fee to get it instantly. And if you're willing to wait, you know whatever two, three days, depending if it's a weekend or not you wouldn't have to pay anything to get it to your existing card and drivers flock to Uber. And and that for me was a aha moment, cause I was going back to when I was an hourly worker in college and I was like that makes a ton of sense and said somebody is going to invent a way to bring this to mom and pop shops to large companies and do it in a very, very efficient manner, and I haven't stopped being passionate about this problem ever since.
Speaker 1:Talking a little bit more about the nuts and the bolts of the business. So how does the Clare platform work? Because I know in the overview I mentioned, it's a fintech company that's really adding on-demand payroll into HR platforms.
Speaker 2:So if you could just talk about what is the actual product experience Before maybe we talk about Claire, let's take a step back around, like the on-demand pay world. So if you do a market landscape there's a lot of probably associate VCs that do this or market analysts You'll realize that there's kind of two types of on-demand pay providers. There's direct-to-consumer and then there's via the employer. Let's talk about direct-to-consumer because we'll just talk about them for a minute and then we'll focus on direct-to-employer much, I think, longer term, a little bit more interesting. So, direct-to-consumer, what they'll do is they'll open up an app. They'll say pay us a membership of roughly $10, $12 a month and then we give you access to advances. Usually they have self like, I would say, consumer given data in order to underwrite. It's a little bit more risky, hence the fees tend to be a little bit higher. Some have equated the fees to being close to what payday lending costs, which is roughly $10 to $12 per $100 tranche, and that's one business model. That business model typically not incredibly hard to go and scale it to half a million to a million users. The problem is regulatory. And the second issue is just where do you bring the company very long-term around, can it be a publicly traded company, and so that was not very interesting to us.
Speaker 2:Where we focused was on the other side. So if you again you do a market landscape, you have this other types of companies that do on-demand pay links with the employer, and the big differentiation here is access to the data when the employees work. Because you have employer data, you have access as well to basically the repayment flow, and repayment flow means that you're part of the payroll process. You don't have to necessarily have the employer do much. You can have it really well embedded and what happens is the repayment risk drops. That's better for the consumer because you can charge way less, and it's also, I think, a little bit more of a sustainable business, meaning you can build things that don't necessarily exist today.
Speaker 2:And so, claire, we sit in the second category. We go via the employer. Within that second category, what we realized was that most on-demand pay providers were going basically employer by employer. So if you talk to typical on-demand pay providers, they'll go ahead and basically try to go to Target, to Walmart, to the big guys, and try to sell them. Hey, you need this as one of your benefits.
Speaker 2:We took a very different approach.
Speaker 2:We said, hey, if the curvature that we're seeing in the innovation in HR tech meaning workforce management systems going from these really old school paper card punch cards to then time clocks, to then super apps, and if payroll is going from hey, it's just this transactional thing that finance uses to these super application where you can schedule your time off and you can do so many different things, then we felt like, oh my God, we should start thinking about embedding financial services within those platforms and we should see those workforce management and payroll companies as a big bet for the company and we should really cater to them. The product as a big bet for the company and we should really cater to them. The product managers of those companies are our customer, and so that's how we started, claire. We experimented with different products, and where we really landed I would say really since last year is when really it picked up is enabling providers to build their own on-demand pay feature and then layer on more products that are linked either to the lending side or to employer enabled benefits.
Speaker 1:So on the employer side, do you see to bring down that cost? Do you see our employers sponsoring it as a benefit that they're sponsoring on behalf of employees? Yep.
Speaker 2:So the simple fact that employers are saying we're going to offer that and we're going to be able to share some of the data that we have is already making it I mean, if you can probably do the math but two to three times cheaper to the consumer. Why? Because I know, justin, we clocked out of your work. Let's say you worked at Chipotle, right, you clocked out. Today, if you are an on-demand pay provider and you're not at Chipotle, you can estimate maybe the person came because of geofencing or whatever, but you don't actually know if this person worked or not. You don't know when they're going to get paid, you don't know if they've been terminated, you don't know if this is their last day of work, and so this level of connectivity makes it cheaper because you're taking less risk. That's one. The second one is there is a lot of flexibility for payroll and workforce management systems to determine how they want to price it.
Speaker 2:Some have built their own digital bank, right or like a pay card, and therefore they can make it even cheaper because they're making money out of interchange. Some are saying, hey, we want to. This is a loss leader for us to acquire customers, so they're going to charge, they're going to bake that into the price to the employer, right and but the vast majority. What they'll do is say it's free if the employee wants it. You know a day or two, but if they want it immediately, immediately it's an emergency. Then there's a small transaction fee similar to Venmo or Cash App.
Speaker 1:That's smart, and so you charge a license fee to the software providers. Is it like a blanket fee or does your fee structure kind of change depending on the deal that you're?
Speaker 2:working on. There are some variability based on the data, the underwriting, the way we partner with them, but, like, simply put, we have a platform fee. So basically what we do is every time that an employee it's at usage right, so every time that they take an advance or, like, transact on our platform, what we will do is charge a platform fee and then, based on how they're pricing, this can be adapted. But that's basically what it is.
Speaker 1:Yes, yeah, there's considerations on the security and regulatory side. Loving to take maybe just a step back and zoom out a little bit. When you're building a company in financial services dealing with a lot of sensitive data, especially in the early days, when you're validating the model and the business, how did you guys think about overcoming those early challenges of maybe addressing security concern, and how did you think about prioritizing those things when you took the first version of the product to market? It's a great question.
Speaker 2:So when we started off, we did this as a little bit of a market map and said how do people typically give advances as a fintech company, so non-regulated, just company right, and almost all of the providers. What they'll do is they'll go to someone who has a lot of money, typically a bank, and say give me $100 million, I'll put it on my balance sheet and I will use these $100 million to go ahead and advance it to customers. Don't need any license. You, just as long as you can borrow that money and have it on your balance sheet, you can go ahead and do the thing.
Speaker 2:When we started off, both me and my co-founder were on visas. We were trying to get visas to stay here. So we were very, very, very aware of any risk that we would take by being just in gray regulatory area. So we didn't have a choice. We had to be hyper, hyper, hyper compliant and when we talked to lawyers, basically like almost all of them in one-on-ones would say the following, They'd be like oh so you're advancing money knowing they will get paid. So it's like, basically, you're risk-free, you're connected to your employer. At the time we also didn't even have this instant feature to your card, so everything was free right to the consumers Like you don't charge anything, you're instant and all of that.
Speaker 2:They're like, look, I understand, but many states are going to still see this as free credit, but it's credit right and meaning you need lending licenses and all that. And we're like, oh my God. And so what we ended up doing, which now is paying back, is we went ahead and convinced the national bank to be the entity who is advancing money to consumers. We then got servicing licenses, brokering licenses in every single state that we needed to, and then those particular users were taking an advance directly from a licensed entity. Big, big difference Took us two and a half years to build our program. It probably would have taken us three months to build it in a different way.
Speaker 1:I feel like it's going to pay dividends, now that you've got the face of infrastructure there, to now be able to scale it up. What is sort of the current state of? I know there's been a lot of news, more things on like a federal level, but if you could talk a little bit more about what's happening around legislations that pertains to earned wage access and how has that impacted on maybe a state by state basis?
Speaker 2:Great question. It's a fascinating time, and if you're nerding on like on-demand pay payments or like how HR tech are going to adapt to it, now is the time to kind of like it's almost like a fictional book that you're reading with everything going on. But anyways, back to the facts. So what's going on is that every single state over the past I would say, two to three years, has started to take a look at these products. Typically, what states will do is, if it's really really a nascent category, they won't really pay attention to it. But if it getting traction, I mean they do have the authority and actually the requirement to go and try to figure out how they should create rules around these. And so a lot of states started sending requests for information, which was just to learn about the products and the effects that it's creating. Some states pretty quickly created something called EWA so EarnWage Access Licenses for providers and said look, we don't need you to go ahead and have lending licenses because that's very, very onerous, so we'll create a separate license for you because you're connected to the employer, you have all of these aspects to the product you're building.
Speaker 2:And then what happened was the federal government got also interested in these products, and so the Consumer Financial Protection Bureau. Earlier this year the director kind of sent a notice being like hey guys, we're going to start looking at this and something's going to come out this year. It wasn't really clear what was going to come out, but director Chopra and I think in his team came out mid July of this year with a very strong stance, which is earn wage access products are a form of credit and the rationale was the following If consumers are taking advances, whether it's for a small instant transfer fee or whatever else, they should have the ability to compare that form of an advance to any other credit product they have. So all they're saying is please disclose the fees to your consumers in a very specific way. It's called a Truth in Lending Act, reg Z disclosures right, and so that's what the CFPB did.
Speaker 2:Now there is an enormous impact on that is that the federal government doesn't dictate right, state by state, which licenses you should get. That's a state decision. But them calling this credit kind of push the states towards saying, ok, they're saying it's credit, we don't want to go and pick that fight, we're going to also call it credit. That's a big deal, because what we thought was something to transparently protect ourselves and we felt like, okay, it's the right thing and maybe in the long run it will help us. I'm being transparent here. We really started off as this potentially being a differentiator for us as being a massive differentiator, because it is really complicated. What we built. We only were able to do it because we had amazingly supportive investors and it took us a long time, and so that creates a lot of problems for existing EWA providers.
Speaker 1:I was going to say. Now it sounds like it's the standard right.
Speaker 2:Exactly, exactly and transparently. When you build, companies are like houses the foundations really matter If your entire company was not built with. We have state by state disclosures and our compliance team is as important as a product team, and compliance can override whatever the CEO says. Those are things that if you don't have this, culturally, it's very hard to adapt backwards. It's easier to be a little bit less conservative than it is to become conservative, and same thing on product development. If you're just sitting here taking money and advancing it, it's very much easier technically than building your tech stack against a national bank that typically is a small bank regionally and then making sure that this is supported by their regulators, which is really hard, especially in this time, and so that's a completely different game that I think EWA providers will have to face. We won't, luckily, but we'll have to face over the next two years.
Speaker 1:You've got a number of great partnerships in place. One I know that you all have talked about publicly is with Gusto that Gusto offers an embedded payroll product as well. As you evaluate different partners in your category, how do you think about evaluating those partners for Claire? Who is, or who isn't, a good fit for who you guys service?
Speaker 2:It's a great question. What we look for in partners are partners that really care about the user experience of the employees of their customers, which are typically employers. Right? Gusto even has a name for the employees of their customers, which are typically employers. Right? Gusto even has a name for the employees of their customers. They call them members. They're a team that has and I honestly I think this is Tomer's vision from everything that I know at Gusto. He started on this for years, and so it's understandable why Gusto is so successful, with small businesses Incredibly hard to cater to is they're really obsessed over user experience, and so that is one element that we look for. We don't partner with everybody that is looking to partner on this. We look for teams that are ready to go and build their own feature, and if we feel like it's too early, then we just help them get there over time.
Speaker 1:I know Gusto has a really specific focus on the SMB segment and we talked about Chipotle. Presto has a really specific focus on the SMB segment and we talked about Chipotle. How do you think about that end member and from an employer perspective, does it tend to trend smaller? I guess dialing in that ICP a little bit, who do you consider is like a good fit for Claire?
Speaker 2:So this is where we're a little bit more agnostic. Is that for us? Because we cater to the payroll and the workforce management systems, they will be the gatekeepers to whoever else we go to. And so some partnerships we have employers that are close to 50 to 100,000 employees, like Megacorps. Right, we will have layers and layers and layers of managers who can manage this and we go mom and pop shop or micro businesses of three employees. That is the benefit of being an embedded player. Is we will, we will going to adapt. We do adapt every single time to their demographic. Again, when 29 different industries and businesses of all sizes.
Speaker 1:Yeah, I won one founder related question for you what is one mistake you've made as a first time founder and what did you learn from that experience?
Speaker 2:Oh, I mean, I've made so many, justin. I think the number one is something that I wake up every single day to try to do, but I still don't do it well enough, and it's honestly, it's the focus. I think the more time goes, the more specific my focus gets, and also there's a journey right of deeply finding product market fit, like all the way down to like quality of economics, quality of partners, and so I'll summarize it with this it's learning to say no. It's really something that I've struggled with. You want to say yes to things you want. When your customers get excited, you want to get excited with them or finding potentially, people that you really want to work with, but you knew something was off, but you didn't say no, so you said yes, and then that creates an impact for the business. I think learning how to say no is can be immensely helpful for founders that don't have time.
Speaker 1:Nico, I just want to ground it out to say thank you again for making the time, congratulations on what you guys are building with Claire. It's been awesome to see the traction, the momentum that you guys have, and I think you're not only. It's clear the foundational work that you put in place when you started the company is paying dividends now, but you guys are really on a roll, so that's awesome to see. I just wanted to round it out. Just ask what's next for you guys. And then, was there anything else that you wanted to plug?
Speaker 2:Yeah, of course no-transcript able to continue on that journey and build, with advanced workforce management, payroll companies. So that's one segment. The other segment is multi-product is we created one very simple product that I would almost call a feature, which is the ability to get your money as soon as you clock out of work straight out of your of your charge system. But that's only one layer of what can change. What's coming ahead of for us is everything employer linked financial services. If you commute to work right where you and I were just talking about, where we lived, when you swipe at to take a subway right, technically this could be to go to work, this could be a pre tax event, and today nobody does that because the technology hasn't reached us. But it's all there, the tax code is built that way, and so there's so many things we could build, meaning employee employer-linked financial services for the employees and the world of lending and other directions, and I think, like for us it really is a dream is to be a generational company in that sphere.
Speaker 1:Well, again, man, thank you so much for coming in talking about the business. We're in very similar HR circles. You've got some great people around you, some great partners, but best of luck to you and the team and, yeah, we'll have to have you back on the show in not too long.
Speaker 2:Sounds good. Thanks so much, Justin.
Speaker 1:All right, that is a wrap. Again, shout out to Nico Simcoe and the entire team over at Claire. Really awesome progress and really good stuff in there too, about building a foundation and a culture around the things that really matter to helping you grow and ultimately scale your business, like compliance, especially when you're building an early stage FinTech company. So some good learning from that. So, again, all the best to him and the team. All right, this week on the show we did a slight schedule adjustment. We are going to be talking about pet tech. We've got a great multi-time founder coming in next week, uh, talking about the company that he's building in the pet care space. So you're going to want to be on the lookout for that. Again, entrepreneurship is hard. It doesn't always need to be. Don't take the hard road. Take the bridge. Subscribe to the podcast Apple Podcasts, spotify, wherever you get your podcasts. Be sure to leave us a review on Apple. We appreciate that. In the meantime, appreciate everyone that tunes in each week. Keep hustling, keep grinding, keep hustling, keep grinding.
Speaker 3:Keep hustling. Grind Grind. Assassin state of mind Hustle Grind. See them dollar signs Assassin state of mind. Assassin state of mind Hustle Grind. See them. Dollar signs way above the bottom line. Assassin state of mind Hustle Grind. See them. Dollar signs above the bottom line. Assassin state of mind Hustle grind. See them dollar signs assassin state of mind. Assassin state of mind Hustle grind. See them dollar signs way above the bottom line. Assassin state of mind. They say money over everything. Gage in the game, shopping for a wedding ring, salary, startups, crypto, stock exchange. Appreciate every penny. I can change One phone call and your life can change. What's your love language? Can't do business if it ain't reciprocated Closing deals on a daily, weekly, monthly. Real, recognize real. Your dudes is acting funny. Don't waste our time.
