Barcelona-based Payflow, a YC-backed salary-advance fintech with aspirations to become a neobank, has secured $9.1 million in a Series A fundraising round, increasing the total amount raised since the company’s founding in January 2020 to $13.6 million.
National and international funds participated in the round, including Spain’s Seaya Ventures, a new supporter of Payflow, and Cathay Innovation via its C. Entrepreneurs Fund, who is co-leading the round. Other investors included Force Over Mass Capital, Y Combinator, and Rebel Fund.
Instead of charging users to take a part of their pay early, the business provides a salary-advance service to employers to make available to their employees. Instead of charging users to withdraw a portion of their money before, the firm charges employers a commission for the technology (as some other salary startups do).
Payflow claims that the strategy has gained favor with both works councils and labor unions.
It also promotes it as a distinguishing characteristic compared to other pay advance firms.
The firm’s co-founder, Avinash Sukhwani, explains that “we distinguish ourselves from other pay-on-demand companies since we have never charged an employee for utilizing the service (we are the first real employee perk, entirely funded by the employer).”
“[Payflow] is completely free for users, and this will continue to be the case,” says Benoît Menardo, another co-founder. “Our mission is to give the first actual employee benefit for blue-collar employees, and we feel that if an employee has to pay for anything, it isn’t a legitimate perk,” says the company.
With a 40 percent download rate on average, and rates as high as 90 percent for specific customers, it claims to have a strong uptake among users, which is 5-10 times greater than competing on-demand wage platforms and other social advantages.
Moreover, with more than 175 companies already on board, it seems that its strategy is ticking all of the appropriate boxes for businesses (covering 100,000 users).
Employers are charged a tier-based fee based on the number of workers who use the program, and the company runs on a SaaS revenue model.
Payflow intends to market the solution to major business customers. According to the company, customers come from all sectors, although — as you would guess — blue-collar employees are the most likely to use it.
“We serve a wide range of businesses, from restaurants to startups to hospitals, but we find that blue-collar employees are the most enthusiastic about our services,” adds Sukhwani.
Suppose lower-income employees need to access their paychecks more often than once per month to pay an unexpected expenditure. In that case, a salary advance may be beneficial in preventing them from going into debt. At the same time, there may be specific hazards associated with fast access to income that might lead to a negative financial cycle — for example, if an employee spends their wages as soon as they are paid and ends up with no money at the end of the month.
When asked about this, Payflow said that it has a “safety restriction” accessible in its employer dashboard “if they desire to restrict use.”
Most firms establish this restriction at roughly 50% so that workers always get at least the remaining 50% of their monthly payment, says Menardo, who adds that this helps them guarantee that there is enough money left over to cover rent and other critical monthly expenditures.
Using the startup’s Series A capital, the company intends to grow its worldwide presence.
It also intends to invest money in product development to achieve its objective of becoming a new bank.
Of course, other neobanks are taking the opposite approach and adding wage advances as an add-on function to their current product offers (see, for example, Revolut).
In fintech, the startup game can be reduced to a variety of strategies and approaches to maximize customer onboarding — after which, if the company has gained enough traction, there is the opportunity to upsell users of a popular feature on more fully-fledged banking services, which are funded by the success of the popular feature in the first place.
As a result, fintech competition is likely to be very dynamic.
Although a particular cohort of users may be more loyal and less likely to switch than others — and if such a demographic can be upsold on banking services via a sticky enough feature that gets them to know a startup service and inculcates loyalty — this could result in a low churn banking customer base that can be used to cross-sell a full suite of services for many years to come. Or, at the very least, that’s the fintech fantasy.
On the product development side, Payflow is working on a “super app” that will allow it to begin expanding its feature set.
Bringing financial wellness to blue-collar workers is one of two new features that will be introduced in 2022, according to Menardo, which will help improve the b2b value proposition. “Later on, by integrating numerous business-to-consumer services, [the app’s aim is] effectively transforming into a new bank.”
Even though Payflow is not disclosing a timeline for transforming its salary advance software business into a direct-to-consumer neobank, Menardo suggests the company wants to grow its customer base by more than 10x, noting that “this concept will be compelling once we have millions of users.”
“We expect to introduce our first direct-to-consumer feature before the end of this year,” he continues.
It also expects to see significant growth in its home country. It intends to double down and invest $3 million of the new capital to consolidate the market — to increase its client base in Spain by fivefold over the next three years.
In terms of market growth, Payflow plans to enter two other areas outside of Spain, in addition to Chile and Columbia, where it already has a presence and is now delivering a service.
Europe and Latin America will be the primary focus of its growth.
Currently, it has pilots operating in Italy and Portugal, among other places. It also claims it plans to add one more market in Latin America this year, bringing the total number of calls it operates to five by the end of 2022, up from three at the time of writing.