Nine months after raising $22 million for its unique take on the cash-advance business, Activehours has gone back to the venture capital well and pulled out another $39 million in financing.
Led by Andreessen Horowitz, with participation from the company's early-stage investors Matrix Partners, Ribbit Capital, and March Capital Partners, Activehours has managed to now raise nearly $65 million since its launch in 2013.
The Palo Alto-based company skirts regulation as a payday lender because it doesn't charge interest on the cash that it fronts to customers. Instead, the company asks that users pay a small voluntary fee for access to their money ahead of their payday. i
For investors like hedge funds and banks, the appeal of giving money to Activehours to fork over to salaried workers ahead of payday is likely a guaranteed rate of return from the cash that the company makes from the "tips" it gets from its users.
The company would not disclose the size of its credit facilities, but for banks and alternative investors that are looking for higher yields than a savings account, the cash advance businss can be attractive.
Activehours spokespeople say that the tips are capped at no more than 15% (roughly) of the total amount of money advanced -- and that no user will be advanced more than $100 at a time.
The problem that the company wants to tackle is significant, there's no doubt about that. According to data compiled by the Activehours competitor, FlexWage the stresses and costs of living paycheck to paycheck for working class Americans are pretty staggering.
Consider that Americans are paying $32 billion in bank overdraft or non-sufficient funds fees, or $9 billion in payday lending fees and interest, $6 billion in lending fees at pawn shops, $5 billion in title loan fees, and it's clear that the numbers add up for folks who are just trying to make ends meet. FlexWage estimates that nearly half of employees who make an hourly wage spend three or more hours thinking about financial issues.
Unlike FlexWage or PayActiv, another competitor, Activehours doesn't work directly with employers. Instead the company goes directly to the consumers that are its users to get them to download the tool directly.
As we described in an earlier article about the company, the service works like this.
Activehours doesn’t take into consideration a person’s credit history. It doesn’t ask for a social security number. Anyone who has a checking account and a job can use the service, regardless of their employer, though Activehours has struck partnerships with companies, including Sears Holdings (which owns Sears and Kmart), to make it easier for its employees to access their accrued pay before their paychecks arrive. The company also also teamed up with Uber, whose drivers need only connect their bank information and Uber account information with Activehours in order to cash out after a shift.
In another interesting twist, anyone on the platform can “tip” on behalf of someone else on the platform, an act that’s done entirely anonymously. Think of it like paying a toll booth operator for your own car, as well as for the car that’s behind you.
It's important to note that given the duration of the loans and the payback period for the service, these tips can wind up being as much as the interest rates charged by payday lenders, according to the website Consumerist.
As they acknowledge, if someone pays back the Activehours loan in two weeks after receiving $100 and paying a $10 tip, it would amount to an annual percentage rate of 260%, which is similar to the exorbitant rates charged by payday lenders.
Still, Activehours bills itself as a way for its customers to take control of their wages.
“Until a few centuries ago, people got paid as they worked. Employers moved to paying employees every two weeks because that was more convenient for them. Now, we’ve built a way for people to take back control of their paychecks,” said Ram Palaniappan, founder of Activehours said in a statement. ”With this latest investment round, we’re looking to significantly expand the team and further improve the product to continue our focus on making make money work better for everyone.”
In addition to the financing, Activehours added Stewart Ellis, a former executive at the marketing technology developer BloomReach, as its chief financial officer. Ramon Icasiano, is joining as the company's vice president of customer care.