Newly Minted

Fintech startups will bank on the current crisis through a veneer of techy benevolence

A motivational post currently making the rounds on LinkedIn seeks to remind us that several of “the most iconic” companies of the last 10 years — Uber, AirBnb, Venmo — were founded in wake of the 2008 financial crisis. The looming pandemic-fueled recession, the post says, will “undoubtedly” lead to another startup renaissance. Out of crisis comes opportunity, at least for those who have access to a network of investors looking to capitalize on said crisis.

The current crisis, though, is markedly different from the Great Recession. This time around, a stock market crash didn’t precipitate millions of job losses. Instead it was a virus that, due to the nature of its contagion, can only be defeated if everyone stays home for as long as possible. People who lost their office jobs in 2008 were able to fall back on hourly retail or food service gigs — or, later, “side hustles” pioneered by the startups that emerged from the rubble of the economic crash. Now there are even fewer jobs to fall back on, but there are still bills to pay.

If any sector of the startup world is poised to thrive during this time of social distancing, it’s the fintechs. Financial technology startups are by far the most nebulous subset of Silicon Valley companies. Rather than giving us something new to spend money on, fintechs essentially create new ways to manage the flow of money itself. The term “fintech” is frustratingly vague — any company that uses technology to “disrupt,” or by definition support and enable, the financial services industry can be considered a fintech, which may explain why the industry reportedly generated $40 billion in investment in 2019 alone. Venmo and PayPal tip jars for laid-off service workers are fintechs; so is the iPad-enabled cash register at the coffee shop I used to go to every morning. There are fintech apps that track your spending and gently chide you when you go over your monthly budget, as well as fintech companies that run all your purchases to the nearest dollar and invest the changes in stocks and bonds.

If any sector of the startup world is poised to thrive during this time of social distancing, it’s the fintechs

Savings and investment fintechs are designed for a specific class of user: those who have enough disposable income to set aside some money each month, but not quite enough to hire someone to do it for them. But there are only so many young professionals with money to blow — or save — and plenty of fintechs have instead set their sights on the working poor. Rather than seek to end the cycle of poverty, these companies have simply rebranded services that have long been understood to perpetuate it. As Sidney Fussell wrote last year in the Atlantic, the brave disruptors of Silicon Valley have found a way to reinvent one of the oldest practices known to man: subprime lending. A crop of new venture capital-backed financial services companies are now rebranding payday loans and layaway, two traditional markers of economic precarity, for tech-savvy consumers — largely by claiming to offer something else entirely.

Like all startups, these new lenders have identified a problem: some people don’t have enough money to buy things they want and need, but they’re also rightfully distrustful of lenders whose services come with high interest, fees, and fine print. For those of us who didn’t establish startups during the last financial crisis, the main lesson of the Great Recession was that we should be wary of the institutions that caused the crisis in the first place. Knowing this, fintechs don’t seek to reform the industry in any meaningful way, but to distance themselves from its seedy reputation using little more than a gloss of techy benevolence.

The 2008 financial crisis was a boon for the payday lending industry, which gained thousands of vulnerable potential customers as the economy shed more and more jobs. (Despite their name, payday loans generally don’t actually require the debtor to be employed.) Originally called “salary lending,” the industry now known as payday lending hasn’t changed much in its 100-plus year history, even as regulators have attempted to curb its most exploitative aspects. Borrowers agree to strict terms and exorbitant interest rates in exchange for quick cash, largely because they have few other choices. Where the salary lenders of the early 20th century threatened customers who failed to pay back their loans with public shaming, extortion, and job loss, modern payday lenders simply turn negligent borrowers over to collections agencies that garnish their wages and tank whatever is left of their credit.

A dozen states have outlawed payday loans altogether; several others, including Ohio, have capped interest rates and limited how much borrowers can take out at once. In 2017, the Consumer Financial Protection Bureau rolled out a federal rule requiring lenders to make sure people have the ability to pay their loans back before issuing them a loan. The rules, which have yet to go into effect, also say lenders have to give borrowers notice before withdrawing money from their bank accounts. These rules are meant to keep borrowers from getting trapped in an endless cycle of debt, interest, and repayment. But as Astra Taylor wrote for the New Yorker in 2016, short-term lenders have always been able to adapt to new limitations — the second the rules change, they find a way to sidestep them. When state legislators in Georgia cracked down on the industry in the early 2000s, for example, lenders began offering alternate forms of credit, including loans requiring borrowers to put up their cars or other belongings as collateral. Some insurgent lenders have found that the best way to get around the rules governing payday loans is to claim you aren’t offering a loan at all.

A 2019 ad for Earnin, a startup founded in 2013, takes the POV of a man asking his friend if he can borrow some money; the friend declines, offering to give him something better. “Seriously, bro, you need to download the Earnin app,” he says. “I’m cashing out $100 instantly for the hours I already worked today.” The would-be borrower, a stand-in for the viewer, objects. “I can’t afford one of those loans right now,” he says — meaning, of course, a payday loan. But Earnin, his friend explains, isn’t a loan. “With the Earnin app, you can access your money that you earned, without any fees or interest. You just tip whatever you think is fair, and the money hits your account instantly.”

Earnin’s users provide banking and employment information upon signing up; they can then “cash out” up to $100 a day in advance of their paychecks. The company refers to these money transfers as “activations” rather than loans or cash advances, according to internal communications reviewed by NBC News. Unlike traditional payday lenders, as Fussell writes in the Atlantic, EarnIn does require users to have a paycheck coming in, because it doesn’t consider its payments “loans” but rather advance paychecks. This safeguard means it will probably be of little use to the 15 million people who have filed for unemployment so far because of the pandemic — but for the millions of others who suddenly need to stockpile weeks’ worth of groceries, medicine, and other supplies, a gentler payday loan may suddenly seem appealing, or even necessary.

Earnin has argued that the app should be exempt from the CFPB rules regarding payday lenders because it isn’t one. Earnin doesn’t go after people who fail to pay back their loans; then again, it can automatically withdraw the money it’s owed. Payday lenders charge interest rates, while the “tips” Earnin asks for are voluntary, though internal documents reviewed by NBC News show that 80 percent of users do tip, adding up to more than $8 million in monthly revenue for the company. A $5 tip on a $100 “activation” can equate to an annual percentage rate of 130 percent.

Earnin wants its users to see it as a community resource, a platform through which struggling people can help each other get by instead of a lender to which struggling people are indebted. It cleverly frames its tips as beneficial to the “community” of Earnin users rather than to the company itself, encouraging users to “pay it forward.” The company claims to be “fighting unfairness in the financial system,” as if it were a nonprofit or a consumer advocacy group — it acknowledges that people lack money because of forces beyond their control, and claims to provide a structural solution to a structural problem. In response to the pandemic, Earnin set up a Facebook group for its users, a sort of mutual aid hub facilitated by a lender. Meanwhile on the Earnin subreddit, users beg each other for “boosts” — a way of temporarily increasing the amount of money they can borrow by $50, which requires getting another user to vouch for you.

Wellness products, including financial, are a neoliberal solution to crises brought about by neoliberalism; they’re a personal salve against collective ills

This emphasis on community responsibility is a common marketing strategy within tech. WeWork, for example, claims its co-working spaces and co-living apartments are a balm against 21st-century loneliness and alienation. Rideshare services like Uber and Lyft — which have long been criticized for facilitating discrimination, chipping away at public infrastructure, and disadvantaging workers, among other things — boast community-minded projects like Lyft’s “Lyftup” initiative, establishing a veneer of concern for the problems they’re accused of perpetuating. Likewise, fintech lenders build their brands by acknowledging the unjust systems they profit from.

Even, an Earnin competitor founded in 2014, similarly markets itself as a “holistic financial wellness” company whose primary purpose is to help the millions of Americans who live paycheck to paycheck “make ends meet, pay down debt, and save money.” Instead of transaction fees or interest rates, Even charges “a flat monthly membership fee that employers can choose to subsidize.” It partners with companies like Walmart — which has long been associated with low pay and wage theft — so workers can get “early access” to their paychecks. Instead of giving workers higher pay, companies like Walmart pay a third party a fee to let workers get their meager earnings a few days early. Even may end up benefiting even more from the current crisis. Walmart, which gives its workers access to Even software, announced in March that it plans on hiring 150,000 employees to address the surge in demand both in stores and online. Of course, their wages won’t reflect the dire need for their labor; as of now, workers will get one-time cash bonuses, but not much else in the way of hazard pay. 

Cash advances are just one part of Even’s “holistic” offerings. The app also tracks users’ income and expenses, creates an automated budget, and auto-deducts savings. In a Medium post explaining Even’s offerings, CEO Jon Schlossberg frames the app as an instructive tool. “We live in a country with no institutionalized way to teach people about their own finances,” he writes. “For those who are lucky enough to put a few dollars away each month, it can be difficult to keep track of what the savings are for, and keep them organized.” This sense of tech-paternalism can also be found in Earnin’s messaging. Their Instagram — full of flat, minimalist design in a palette of gentle pinks, purples, and blues; a far cry from the neon signs and gaudy billboards associated with traditional payday lenders — include “budgeting tips” like buying in bulk, and creating a spending plan to escape “bad financial habits.” The assumption is that people are poor because they don’t know how to manage their money, not because they aren’t making enough money in the first place.

More than a financial tool, Even claims to be a “wellness” benefit that businesses can offer their employees, not unlike health insurance or subsidized gym memberships. This branding reflects a broader shift in marketing trends in which a product — be it a mattress or an electric toothbrush or a seemingly friendly payday loan — is sold as a vector through which customers can live their best lives. Wellness products are a neoliberal solution to the personal and systemic crises brought about by neoliberalism; they’re a personal salve against collective ills.

Despite Even’s sleek branding, the company’s website makes its intentions clear. Wage workers’ lack of financial wellness may personally hinder them — as Even points out, 55 percent of Americans live paycheck to paycheck — but the real victims are the employers who “report absenteeism and tardiness due to employee financial stress.” Even offers a “holistic” financial planning service for underpaid workers, but more importantly, its product “delivers unprecedented ROI for businesses.”

The prioritization of economic “wellness” over human lives has endured through the current crisis. Before entire cities and states ordered all non-essential businesses to shut down, some pundits and politicians encouraged Americans to support their country by doing what they do best: spending money. Although the virus has claimed nearly 15,000 lives in the U.S. alone, the president has clamored for people to get “back to work” as quickly as possible. Already, there have been calls for those who are less “vulnerable” — i.e., young people who, despite emerging evidence to the contrary, are thought to be more or less immune to the virus — to return to their retail and food service jobs. Of course, the least financially vulnerable among us never stopped working; they just stopped going into the office. It’s the hourly workers whose lives they’re willing to sacrifice in exchange for meager short-term returns.

While one subset of the population grapples with a devastating loss of income, plenty of others are dealing with a much simpler problem: an abundance of free time. One data analytics firm claims revenue from online clothing shopping has already jumped by 43 percent in the United States since the first week of January. Less than a month into this new reality, I have been bombarded with email advertisements from every single retailer I’ve ever given a cent to. They not only want to remind me that they’re “here” for me in this difficult time; they also want to remind me that there’s no better way to ease my boredom and anxiety than buying things I can now only use inside my home.

Those who want to buy a new Dutch oven or fancy exercise equipment to fill the void created by a lack of socialization have yet another subset of fintechs to help them out. Nearly one-third of the $40 billion invested in fintech companies in 2019 went to companies that let customers break up payments for consumer goods into installments. Unlike paycheck advances for cash-strapped workers, these installment loans aren’t solely aimed at the working poor — people can use them to finance $3,000 Peloton bikes and $2,000 Casper mattresses just as easily as they can break up a $50 Forever 21 order into four convenient payments.

More than a half-dozen installment payment processors have emerged over the last decade, the largest of which is Affirm, a San Francisco-based company that has raised more than $1 billion in venture funding. Affirm and its many competitors — including AfterPay, Klarna, Quadpay, and several others — all operate on a buy now, pay later model. Like the upgraded payday lenders of Silicon Valley, these installment lenders’ branding focuses on freedom and flexibility. “We’re here to help you pay over time for the things you love,” Affirm’s website reads. “Buy what you want today, pay for it in four installments, interest-free,” boasts AfterPay, a competitor.

Before the crisis, fintech lenders cleverly framed the problem their customers faced as an immediate lack of funds, not a fundamental lack of resources

Ultimately, companies like these are meant to benefit retailers, not consumers. Haley Boyd, the founder of the shoe company Marais USA, told Glamour that AfterPay “really eases [customer’s] purchasing power” by letting them “splurge” on shoes they wouldn’t otherwise be able to pay for up-front. “I’ve heard the sales pitches these installment loan companies make and they are definitely touting that it will boost conversion rates and reduce the high percentage of cart abandonment many retailers face,” Jaclyn Holmes, the director of a firm that studies installment payment plans, told Money.com in 2019.

In a 2014 interview with TechCrunch, Affirm’s founder and CEO Max Levchin, formerly of PayPal, described the company’s target customers as millennials who distrust credit cards and other products offered by traditional financial services companies, partly because of the generational trauma of coming of age during the Great Recession. A host of studies conducted by banks and other financial institutions found that the 2008 financial crisis made young people distrustful of, well, banks and financial institutions. One Merrill Edge report claims that the recession made millennials “risk averse” and wary of making unnecessary purchases or taking on debt; another, by Bankrate, found that millennials are eschewing credit cards for debit cards and personal loans.

Aesthetically, these installment lenders’ websites make them seem more like lifestyle blogs than financial services providers. Affirm’s website features bright colors, vibrant design, and products arranged artfully against pastel backgrounds, as if they were posing for Instagram. Klarna’s website features listicles highlighting products that can be financed through the service. Much like fintech lenders, these installment startups are responding to the current crisis by making it about the service they offer. Klarna and Affirm both posted statements from their respective CEOs about how the pandemic won’t get in the way of business. In its statement, Affirm said it will “continue to put our consumers first, standing by our commitment to never charging late fees. Now now, not ever.” Not even during a pandemic. Afterpay’s Instagram is even more subtle: one post encourages people to keep supporting brands “from the comfort of your home.” Another reminds them to “take a deep breath today.”

Affirm and AfterPay are integrated into hundreds of stores’ online checkout portals. If someone tries to buy a Casper mattress or a Peloton bike, they’ll be encouraged to break up the cost into monthly installments without having to pay interest or apply for a credit card, eliminating the mental barriers that prevent people from spending money. But even as they dangle the promise of helping people finance tech essentials or the latest spring fashions, installment lenders claim their primary concern is keeping customers out of debt. They frame themselves as a financially responsible alternative to credit cards, even as they provide a near-identical service with fewer benefits. “It’s about helping you say yes,” Affirm’s website declares. “Yes to the things that make your life easier, more fulfilled, and more fun… all while staying true to your financially responsible self.”

Like traditional lenders before them, fintech lenders’ primary goal is to convince people to spend more than they otherwise would by giving them access to money they don’t actually have. Easing people into overcoming barriers to spending requires a significant amount of psychological manipulation even in the best of times. Before the crisis, fintech lenders cleverly framed the problem their customers faced as an immediate lack of funds, not a fundamental lack of resources.

It’s not surprising that this framing emerged from the libertarian startup world, where telegenic founders and their marketing teams have successfully rebranded all forms of precarity as freedom. In their mind, the so-called gig economy that emerged from the 2008 financial crisis isn’t a result of — or a major contributor to — eroding labor protections and wages that stagnate while the cost of living creeps up. Instead, it’s a way for idle workers to take control of their livelihoods by turning every minute of downtime into yet another side hustle. Installment plans aren’t a way of extracting money from cautious consumers who have sworn off credit cards; they’re an innovative way of giving people the freedom to pay for the things they want on their own terms. Payday loans aren’t a sign that workers aren’t making enough money to get by; they’re a mechanism through which wage workers can become masters of their own destiny by deciding when they get paid, even if they have no say in how much they actually make.

Now that social distancing has forced the economy to a standstill, these services are sure to take on a new life. People who are stuck at home with nothing to do but shop can finance their boredom-induced impulse purchases through digital installment plans. People who have no choice but to work as InstaCart shoppers or Amazon delivery drivers — and who in many cases, still don’t receive guaranteed paid sick leave even though their work has been deemed “essential” — may end up turning to digital payday loans to buy their own groceries or to take a few days off. Indeed, Earnin’s massive user base already includes InstaCart shoppers and Uber drivers, two groups currently fighting to be recognized as full-fledged employees of the companies to which they provide their services instead of independent contractors. Uber is reportedly considering offering its drivers direct loans in the near future, even as its own contractors ask for higher wages instead.

For these lenders, the culprit isn’t low wages or an economic model in which most people can’t cover an emergency expense, let alone a frivolous one — it’s the workers’ schedules, not the amount of money they’re actually being paid, that’s the problem. “Over three-fourths of the country live paycheck to paycheck,” Ram Palaniappan, Earnin’s CEO, said in a 2018 interview with TechCrunch. “It’s an issue of fairness. We all have gotten used to getting paid every two weeks, but most employees would rather be paid before they work.” In this view, it’s unfair that workers are paid every two weeks instead of immediately after their shift ends. How much they actually get paid is irrelevant; the important thing is that they have access to their money as soon as possible so they can spend it as soon as possible.

One of Earnin’s most recent funding rounds was led by Andreessen Horowitz, the venture capital firm co-founded in 2009 by Silicon Valley kingmakers and prominent conservative donor Marc Andreessen. In a 2012 interview with Quartz, Andreessen revealed his vision for the future: a lower minimum wage, lax government oversight of private industry, and a focus on pushing college students to study engineering, math, or related fields, lest they be relegated to a lifetime of selling shoes for a living. In the libertarian paradise of Andreessen’s dreams, wage workers will have even fewer protections and make less money than they already do. The least Silicon Valley can do is give those workers a way to access their paychecks ahead of time, even if it comes at a cost. Looked at this way, fintech aimed at the working poor isn’t a way of eradicating poverty, but of turning a profit while mitigating its terms.

Once you strip away the friendly marketing copy and the sleek design, these new lenders are almost indistinguishable from their predecessors. Though they acknowledge the services their more established and reviled competitors provide are predatory, they use a sheen of tech benevolence to distance themselves from the very industry they’re part of. If there’s anything innovative about these companies, it’s how they’ve managed to convince customers that they have their best interests in mind — even as they expand the system they claim to stand against.

Gaby Del Valle is a freelance reporter covering immigration and labor. She is the co-founder of BORDER/LINES, a weekly newsletter about immigration policy.