The Generalist - Clair: Rewiring How America Gets Paid

Hey friends,

Welcome back for a special midweek edition! This time, we’re digging into Clair, a neobank and on-demand pay provider. It’s correcting one of the American financial system’s lingering injustices – the pay cycle. Clair provides economic security to workers while keeping them from resorting to predatory options like payday loans.

It also has one of the most interesting, elegant business models I’ve come across, that somehow manages to be a win-win-win-win. Seriously.

If you’d like to understand how Clair makes that happen, jump in!

This piece was written as part of The Generalist's partner program. You can read about the ethical guidelines I adhere to in the link above. I always note partnerships transparently, only share my genuine opinion, and commit to working with companies I consider exceptional. Clair is one of them.

CLAIR: REWIRING HOW AMERICA GETS PAID

Actionable insights

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about Clair.

• America's pay cycle is broken. The typical worker is paid on a biweekly basis. While this is the standard, it makes little sense. Why shouldn't employees get paid for the work they do each day? The current setup effectively gives companies an interest-free loan at the expense of workers.
• Payday lenders often harm more than help. Because of the unfavorable pay cycle mentioned, many Americans live in constant financial instability, unable to weather economic shocks. In tight times, millions turn to payday lenders. These predatory operators often charge more than 600% APR, creating a cycle in which workers fall into a constant deficit, taking out new loans to finance old ones.
• Some problems are best solved orthogonally. How do you build a fair on-demand pay company? Clair decided to start by building a digital banking platform. Although Clair is not a bank, this unorthodox choice has proven savvy. The company monetizes by adding value, not extracting it.
• The impact of Clair's product is profound. Research shows that on-demand pay reduces absenteeism by 34%, reduces turnover by 40%, and increases job performance by 86%. Especially after considering its innovative no-fee business model, offering Clair is the closest thing to a no-brainer for employers.
• Clair's business model creates a rare four-way win. It's unusual to come across a company with a model as elegant as Clair's. It offers on-demand pay at no cost to either the worker or their company. Better still, the HR platforms that Clair partners with and that distribute the solution generate revenue. Workers, companies, platforms, and Clair all win.

***

One of the sneaky injustices of the American financial system is how it handles wages. If you think about it, every employee is secretly a lender. They go to work, expend their efforts, and then…wait. Fifteen days, thirty, perhaps even longer. Only then do they get compensated for their work; only then are they paid.

Does this make sense? Few other parts of our economy work this way. You don't order a pizza and pay the restaurant a month later or fill up your gas tank, then post a check to the service station when you get around to it. The fact that "buy now, pay later" companies feel like a novelty illustrates that delayed payment is far from the norm, except for labor.

The result is that the average worker effectively extends an interest-free loan to their employer. They do their job and then provide a 0% APR float to the hiring company, all while racking up their own expenses. The unfairness of this cycle is part of the reason that just 39% of Americans could pay for a $1,000 emergency expense. By default, the wages you have earned, the money that is yours, lags both your labor and costs.

When disaster hits – medical expenses, car trouble, a broken boiler – workers must choose the best of bad options. That might involve calling on predatory payday lenders charging 600% interest or more for a simple advance. Even modern, software-forward alternatives levy substantial fees disguised as "suggested tips."

The survival of these paltry options is less an indication of customer desire than desperation. There simply is not a better option. Or, at least, there wasn't until Clair came along.

Founded in 2019, Clair is one of the most interesting businesses I've analyzed. Partially, that's because you keep expecting there to be a catch. Rather than building a less-terrible payday lender, Clair addresses the root of the problem: the pay cycle. Instead of waiting for weeks, Clair gets you paid as soon as you clock out for the day. It doesn't cost the worker a penny – no fee, no suggested tip, no interest, nothing. Remarkably, not even the company that provides the service pays for it.

How does Clair make this work? The answer is both simple and complex. Clair monetizes through interchange fees. That might sound easy – a little business model twist but nothing more. In reality, the only reason the company can monetize this way is that it has gone through the convolution and headache of building a digital banking experience. It's reminiscent of a Steve Jobs quote: "It takes a lot of hard work to make something simple." If Clair's product looks almost effortless, that's because it has put in the sweat to make it so.

It could prove a profoundly impactful and profitable approach. Clair is correcting a fundamental financial transgression - correcting the penurious pay cycle.

In today's piece, we'll discuss the subtlety and elegance of this innovative model while remarking on the risks of the "earned wage access" (EWA) space. In particular, we'll discuss:

• Origins. Three Swiss twenty-somethings recognized one of the great flaws in the American financial system. They devised a solution that even fintech veterans consider remarkable.
• Product. First-principle thinking led Clair to go many steps beyond a traditional EWA solution. In addition to an intuitive consumer product, the company has constructed a functional banking experience. That gives it the potential to roll out many additional features.
• Business model. Core to Clair's DNA is the belief that workers should not have to pay to access wages they've earned. To support that position, the company has constructed an elegant model built on partnering with time and attendance companies.
• Culture. In Nico Simko, Clair has a CEO able to cut to the quick of an issue, scything through complexity. He's helmed a company focused on a serious mission that hasn't forgotten to have fun.
• Risks. There are few things so personal, so pivotal as handling someone's paycheck. Clair has embraced that challenge, but it comes with risks. Despite its efficacy, the company's model also has clear drawbacks.
• The future. What will Clair look like in five years? It has the chance to build a major fintech business for America's underbanked.

Let's get started.

I really hope you enjoy the piece. As a reminder, we’ll be taking a short break this weekend but will be back with a vengeance the Sunday following.

See you soon!

Mario