The startup with a social mission of solving the payday loan problem

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Today’s guest looked around at the payday loans space, saw how many people are going to get payday loans at exorbitant rates, and he said, “There should be a solution.” So he came out of retirement to start a new business and solve the predatory payday loan problem.

I wonder how his solution conflicts with people who have an interest in seeing the problem continue. We’re going to find out all that and how he built up his business.

Safwan Shah is the founder of Payactiv which is a financial wellness platform that enables employers to provide their workers instant relief from their between-paychecks financial headaches.

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Safwan Shah

Safwan Shah

Payactiv

Safwan Shah is the founder of Payactiv which is a financial wellness platform that enables employers to provide their workers instant relief from their between-paychecks financial headaches.

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Full Interview Transcript

Andrew: Hey there, freedom fighters. My name is Andrew Warner. I am the founder of Mixergy, where I interview entrepreneurs, about how they built their businesses, for an audience of ambitious entrepreneurs. You know, when I was in school . . . I’m going to ask you about this situation, Safwan. Nobody talks about it. But I had a friend. We graduated. A couple of years later, we talked about what we were doing. He was running his family’s . . . hotels, excuse me. And in a moment of openness, he said, “You know, one of the things that we do is I give them loans.” I said, “Why are you whispering about giving them loans?” He goes, “I give them loans whenever they ask for it, then they now owe me for months into the future, and they can’t leave. Because having people clean up after you is not really a good job, but once I give them a loan and they’re indebted to me, they stick with me.

Today’s guest looked around at the payday loans space, saw how many people are going to get payday loans at exorbitant rates, and he said, “You know, there should be a solution.” And he came out of retirement. He was a successful entrepreneur who said, “You know what? I’m coming out. I’m going to start a new business, and I’m going to solve that.”

And I wonder how much his solution is going to conflict with people who have an interest in seeing the problem continue. And we’re going to find out all that and how he built up his business, how he got to a place where he can start this business, why he wants to be on a mission instead of create another business that’s more about growth and revenue and profits and exit. All thanks to two phenomenal sponsors, the first will host your website right. It’s called HostGator. The second will help you hire phenomenal developers. I’ll talk about those later.

I want to introduce you to Safwan Shah. He is the founder of PayActiv. He works with employers to allow their employees to get paid way sooner so that they don’t have to go after predatory options. Safwan, it’s good to have you here.

Safwan: Thank you very much, Andrew. Excited to be here.

Andrew: Is what I described at all like something that you’ve seen, or is my friend a random example?

Safwan: No, it’s very accurate. Holding back money or giving access to money and then, in a way, tying you with repayment of that money is a thousands of years old method. May I use the word “method of control”?

Andrew: Mm-hmm.

Safwan: So there’s nothing unusual about it. It’s a practice that is done all the time. Maybe the fundamental question that we should also ask, is that why do people need money so desperately sometimes? Because that is the moment where they would pay anything for it. And they’ll do anything for you to get that money. So maybe as we go deeper into it, we’ll discuss that [inaudible 00:02:57].

Andrew: Give me an example, because I have to be honest with you, I don’t feel a personal connection to this at all. I don’t relate to somebody who needs $700 so desperately that they would pay over $1,000. And sometimes, it’s thousands of dollars, right?

Safwan: Yes.

Andrew: For the right to have gotten that $700. Give me an example of someone who would go through that.

Safwan: So I think the best way to frame it would be to see the current state of the U.S. We are the richest country in the world. We are the most powerful country in the world. We have about 145 million people who actually are employed. So, in a 300-odd-million population, 145 million are employed, of those 145 million people, estimates are that about 60% to 70% are living paycheck to paycheck. What that means is that they do not have any reasonable amount of savings to lean on if they have a tiny financial shock between a pay period. Whatever they get in one paycheck is consumed during that pay period until they get the next paycheck.

So imagine this life of on a tightrope for millions and millions of people. So, when a tiny financial shock hits them, and also add to it the other complexity that they may not have credit, they may not have credit cards, or they are maxed out credit cards. So now, let’s say in the 8th day of a 14-day pay cycle, they need $50. Where will they go for those $50 or those $100? Where will they go?

Andrew: They can’t go to friends and family, because they’re probably in a similar situation, and so they do go to all those stores that I used to see when I worked in the hood in New York that just offer the money really fast.

Safwan: That is correct. And what do they offer? They offer a welcoming sign. Optically, they look very nice, comfortable places with a beaming smile. They’re not like a huge bank where you enter and you kind of look at yourself that, “With my grubby hands, I’m walking into a bank. All these people are so rich and powerful, and who am I?” So there is that industry for that reason.

Andrew: I’m going to come back and ask you why you decided that you were going to help them get their money sooner instead of helping them save. But first, I’m sensing this do-gooder glint in your eyes. You told our producer when you talked to her, “You know what? I was, as a kid, mission-driven.” Can you talk about that? Give me an example of how you were purpose-driven back when you were growing up.

Safwan: I think I do recall saying that, and I do think about it all the time. Andrew, one only has a very good idea of who they are in hindsight. And the luxury that age provides us is to have hindsight, because you have more to think about, you have more to process. This conclusion I arrived at by looking at my life, because when I wrote my book, I had to think very deep on what I think. “Who am I?” And this epiphany came when I was reading “Man’s Search for Meaning” by Viktor Frankl. And it’s a small book, and I recommend everyone should read it, and I hope everyone has already read or know about it. In that, the one fundamental thing that struck with me was that if you have a purpose-driven life, you are going to be mission-driven. That purpose is what will drive your next step.

So, when I look back at myself when I was a kid, there was perhaps . . . maybe I was a lazy kid. And I needed something to ignite me, to give me a spark. And I grew up in Pakistan where there was a lot of inequality and inequity and poor people, uneducated, illiterate, kept back for whatever reason. So this was a society of contrasts. So it is not too hard to be sort of inspired that “Why is this child, who looks very clever, wearing dirty clothes, doesn’t have shoes, and why am I so, you know, comfortable in my life? This child is looking at a garbage can and getting food from it.”

Andrew: You literally saw that? And you were in a comfortable place because your parents did what?

Safwan: My parents were, you know, working, educated. But this is a society of contrasts, right?

Andrew: Safwan, why didn’t you look at that and say, “There must be something wrong, something that he did wrong or his parents did wrong, or if he wants to, he could turn it around.” I have to be honest with you, even as you were talking earlier about these people who were living paycheck to paycheck, there was a little voice in my head, and I’ve learned that the voice is wrong. But a little voice in my head that goes, “They should be saving more. They actually are probably not responsible enough with their money. It’s their fault.” Especially as a kid, why didn’t you say, “The only way I can rationalize this is by saying I’m . . . someone did something better, and they’re doing something worse.” You’re smiling as I say that.

Safwan: Because I don’t believe that. That thought has never come to me. The human condition is not something that we always create. It is sometimes thrust upon us. For 11-year-old kid who is, let’s say, poor and cannot go to a good school but is very smart, all these things are possible. It is a sensitive dependence on initial conditions, if you’re born on the right side of the tracks or the left side of the tracks, east side of the city or the, you know, west side of the city. Everything changes. We’ve got so much data around it now. So, for me, it was not about judging them for having failed in life. But that is the opportunity or human condition they were thrust with.

Andrew: Okay, all right. So just so people see, you’re not just a do-gooder. You’re also a businessman. You’re also an entrepreneur. Let’s talk a little bit about some of your past. We talked before, you and I got started about how you were with Infonox. When did you join with Infonox?

Safwan: So I started the company in 1999.

Andrew: Excuse me. You know what? I can’t tell. So I thought you founded it, but when I look at your LinkedIn profile, 1999, it says that you were . . . doing nothing, apparently.

Safwan: Right, maybe it’s an error or something.

Andrew: Maybe I put way too much emphasis into it. You founded it in 1999 in Sunnyvale, California.

Safwan: That is correct.

Andrew: What was your vision for the business?

Safwan: So the name Infonox comes from three things, “Information knocks” . . . So we were living in the era of the global connectivity, remember, in 1999. “Information knocks.” It was all about transitioning from data to information to knowledge, so information to knowledge. The third thing that was . . . so that was the second thing, the transition from information to knowledge. The third thing was that security was going to be a hugely important thing at that time. So Infonox also stood for “In Fort Knox.” So what did we do? We were one of the first, perhaps the first company in the world to aggregate financial services of different types and present them on a browser. My original vision was to build something like what Mint is today.

Andrew: To get all of our data aggregated and presented in one place where we could see it.

Safwan: That we could see it and it would our . . . and then do analytics on it, so data to information to knowledge.

Andrew: Got it.

Safwan: Eventually to wisdom, which is AI. So that was the whole concept underneath it, but as fate would have it, as time would . . . you know, the way of the times, that when we actually evolved that technology and the platform, the market that found our service to be most valuable was a completely different market. And we ended up going in a different industry. We were always technologists, but that’s how it . . . We didn’t go consumer-driven. We went business-to-business.

Andrew: For which businesses?

Safwan: This is the brick and mortar casino business.

Andrew: Okay. And what did you end up doing for them?

Safwan: So there are, you know, somewhere between 1,500 to 2,000 brick and mortar casinos in the U.S. and maybe about another 1,000 globally. So these casinos are in the business of serving patrons and giving them chips against cash. People come there to play. And these are called gaming patrons. So the whole idea is how to give them access to cash in the fastest possible way with the least amount of risk. They could use their cards, they could write a check, they could take it out of an ATM, they could get a credit line. So a casino is a complete ecosystem which is highly regulated and managed that way. So their cashiers needed software to be able to service the customer in the fastest possible way with the least amount of risk. So our technology found a home in that industry.

Andrews: And . . . Sorry, go ahead.

Safwan: So that is precisely what we did, and did for many years with great success.

Andrew: I’m looking at your LinkedIn profile. I misread it. It was just that your company took a few turns and each one had its own mention in your LinkedIn profile, which is why I misread it. One of the things that stands out for me is you said it was bootstrapped. Was it bootstrapped until 2005 and you eventually took on funding? Or was it bootstrapped the whole time?

Safwan: So entrepreneurship always has different journeys. When I started Infonox, of course, a couple of friends and I had started it, and we needed money. And most people that I went to said no to me. And for whatever reason, we said we were going to persist with this idea for what it was originally and kept bootstrapping it through $50,000 from this person and $10,000 from there and credit card debt and, you know, selling whatever assets that I had, tapping into my 401(k). I did all of those things. I was abject-committed and abject-poor, but totally laser-focused that we will make it happen. So wherever we raised money . . . so it was bootstrapped right to the end. Wherever we raised money, we didn’t actually get money into the company. If I recall, we never got more than $200,000.

Andrew: Total?

Safwan: Aggregate.

Andrew: Wow, okay.

Safwan: And, you know, the exit number when we added it all together was more like closer to $90 million to $100 million then. So that’s the return on $200,000. So we made partners through strategic relationships. So if somebody said, “I’m going to give you access to the brick and mortar casino industry, we said, “Okay. You can have x-percent of the company.” If somebody said, “I’m going to give you access to the banking infrastructure . . . ” We were also serving a lot of major banks in the U.S. [inaudible 00:14:25].

Andrew: Bank of America, Capital One.

Safwan: So it’s bootstrapped with strategic alliances.

Andrew: So you would give someone equity in the business in exchange for having them introduce you?

Safwan: Access.

Andrew: What do you mean by “access”?

Safwan: Access, meaning to distribution, that “Hey, I’m in the casino industry.” When you think about it, at the end of the day, what is a business? It is a struggle to find distribution. A business is about getting customers. And where are the customers? You know, they could be retailers, they could be other businesses, and so on. So if somebody gives you access to distribution, that’s 90% of the job if you have the technology.

Andrew: Got it, got it. Okay. And you sold, you said, for $100 million, and this is why you are at a point in your life where you said, “You know what? What am I going to do next? Let me take a moment here to talk here to talk about my first sponsor, and then come back into your story.

My first sponsor is a company called Toptal. You’ve hired, Safwan, a lot of people. Toptal is a place where you can hire the best of the best. You just press a button, schedule a call with one of their matchers, and they find the best of the best developers.

Give us a tip for hiring developers. As the guy who was the CTO of Infonox, as a person from the beginning was a developer, and engineer, what advice do you have for somebody who is listening about how to hire?

Safwan: First of all, when I think of a CTO, there are two ways to think about it, CTOs who are visionaries, CTOs that are hands-on. I firmly believe that the CTO of a Silicon Valley company or any company should be, at some point in their life, capable of doing hands-on technology development. They should have been exposed to multiple technology types, because, you know, people can almost get religious about “I am a Microsoft camp,” and “I am a Java camp,” or “I’m a . . . ” you know, another camp. So they should have had enough exposure that they can detach themselves and see all of these as buildings blocks. To me, a CTO is somebody who has that wisdom to see technology blocks as something that business drives, rather than technology drives business.

Andrew: Okay, I got it. And so, as someone who’s hired, do you have any advice for somebody who is trying to hire developers, for how to hire, for what to look for?

Safwan: If it’s just developers, then look for their special expertise. Look what they’ve most recently done, because technology developers, what they’ve done most recently is what motivates them the most, or they are motivated by that. Look at these two things. You can do all kinds of questions and tests. I’m an engineer, so I can go [on it 00:17:06] forever. But it’s really about giving them an opportunity in a specific area and setting them up for success. If you can do that, you’ll get great developers, even though they may start a little, you know, less experienced. But give them something that they can be proud of, and they’ll do wonders.

Andrew: All right. If you’re looking to hire developers, go to toptal.com/mixergy. And Safwan, you’re welcome to do this. One of my past guests, Derek from Tatango, it’s a text-messaging company, decided, “You know what? We’re struggling to find developers. We can’t do it. We’re wasting too much time talking to 20, 30 developers in interviews. Why don’t we just try this Toptal thing that Andrew is talking about? They called up Toptal. Toptal understood what they were looking for, introduced them to two different developers. His CTO said, “You know what? Either one of those could actually be the right person. Let’s pick the one that feels right.” They hired that person. A little while later, the CTO said to Derek, “You know, this guy could actually be our CTO. He’s that good.” They’ve continued to hire from Toptal.

If you, Safwan, or anyone else is looking to hire, go to toptal.com/mixergy. They’ll give you 80 hours of Toptal developer credit when you pay for your first 80 hours in addition to a no-risk trial period. They are the best. That is why Andreessen and Horowitz invested in them. Toptal.com/mixergy. Were you at that point . . . well, what did you do? You sold your company. You had freedom. What did you do before you started PayActiv?

Safwan: So I decided to take some time off. I even went to Stanford to the business school and did a Stanford executive program. And I wanted to teach, so I had this dream that one day I wanted to teach at Berkeley. And so I started teaching as an adjunct faculty at the Haas School of Business. I wanted to teach more, and I went to UC Santa Cruz and taught at the Baskin School of Engineering. So I’m kind of adjoint/adjunct faculty in these places. So I pursued all these things and didn’t know what I wanted to do. I really felt like . . . I give the example that it was like . . . think of it this way, imagine this, that you’re a printer with a lot of ink but no paper. So that’s what I felt like, that, you know, I don’t know what to write.

Andrew: What was the thing that you wanted to get out? What was it that you felt was inside you?

Safwan: I didn’t know. I didn’t know.

Andrew: Something had to come out, and it wasn’t what you were doing.

Safwan: I didn’t know. Everyone would propose this and propose that. “Let’s do something in AI. Let’s do something in machine learning. Well, this is happening. The cloud is this way.” And I kind of looked at all those things and said, “Okay, but what I care about . . . ” And I didn’t know it at that time. What I cared about was the human condition. And one thing kept gnawing at me, which was that why is the richest country in the world, America, why does it have so many lower-income people? And I was starting to get very interested in economics, and I could not help but notice that as wages have stagnated, productivity has gone up. The theory says that as productivity goes up, wages go up. But for 40 years, there’s been a complete bifurcation. There’s a divergence.

Andrew: Because technology is the cause of the productivity increase?

Safwan: So automation and technology, in some ways, creates far more leverage than you ever had before in the history of mankind. What you can do as Amazon, you can create a $1 trillion company through automation and operationalization with far fewer people and great profits. This is the ultimate sort of pinnacle of business making. And wages have just not grown, because this work is done through automated tools, not human beings. So wages have stagnated. And that’s an endless argument on why and what and what is the right way to look at it. But that has left millions of people in America almost looking for opportunities, and there are not that many.

You know, there’s a book out by David Graeber called “Bullshit Jobs.” There’s a lot of jobs, but they’re kind of, of that nature. This has also caused an unintended consequence that millions and millions of people are living paycheck to paycheck because they just don’t earn enough. And compound it with the fact that we have the greatest marketing machinery of the world now in play, through social media, through whatever. So spending is way more different than it ever was in the last few decades. We spend more. We spend it all the time, 24 by 7 online commerce, etc., etc. So this has changed the shape of America. And in that, a startling statistic came that $170 billion were being paid every year in alternative financial services, just as fees, $170 billion a year.

I did a quick math, and I said if about 70 million people or 60 million people are taking whatever service they’re taking and paying $170 billion, that’s like almost $2,500 to $3,000 a year in fees. And every month, it’s $200 a month. So, Andrew, the question I asked is, that means $200 a month are being spent for something. And what is that something? And guess what it was, $35 billion for overdraft fees, $35 at a time, $10 billion to $15 billion in late fees could be anywhere from $5 to $50, $6 billion to $9 billion in payday loans, another $7 billion to $8 billion in bank fees.

Hear me out. For having a balance below $1,500, you, Andrew, have to pay $9 a month to the bank, because you do not have deposits to give. So now, if you look at the lay of the land, for people making $40,000 a year, they are losing $2,500 a year, which is close to 7%, because they have to pay for just basic services. For instance, how much do you pay for a bill when you pay it?

Andrew: So I have to be honest, I don’t even know.

Safwan: You don’t have to pay anything, because you have deposits. You have a bank which provides you bill pay. But if you didn’t, you would pay anywhere from $1 to $7 to $10 for an expedited bill pay.

Andrew: How? Paying it to who?

Safwan: To a third party who will go and pay the bill for you.

Andrew: Oh, because the way we do it right now is we just auto-wire transfer into PG&E. We have another wire set up . . . it’s not wire. It’s actually bank to bank payment, ACH.

Safwan: ACH.

Andrew: Another one set up to pay our credit cards, and then the credit cards pay everything else. And that doesn’t cost me anything. I actually get points every time I do it. You’re saying if I didn’t have that bank account, if I didn’t have that credit card, I would have to go into some store, which I’ve also seen, those are also the payday loan stores, from what I remember, would also take your payment to pay the gas company and so on. And you’re saying they then have to pay a fee on that?

Safwan: That is correct.

Andrew: Okay, so you’re looking at all these fees, and you say, “Somewhere in here is my mission.” Why, of all the things you could have done, why didn’t you do like the founder of Stash, who I interviewed just a little while ago, who said, “You know what? I’m going to create a bank where you don’t have to pay all these fees”? Why didn’t you say, “I’m going to find a way for people to pay their bills without having to pay fees”? Why did you say, “I’m going to go after the payday loan world”?

Safwan: I mean, there is a very strong business reason for it. I believe that the top 20%, 10% to 20% of the people who have wealth and steady jobs, etc., those individuals, everyone is clamoring for. Banks want them, investment banks want them. Everybody wants them. But the bottom 60% are totally fragmented. There is no one who has gone out and aggregated that industry. And there are 60 million people there. So, to me, it made total business sense, because I do not believe banks can serve those people who do not have much to deposit, because banks are designed around constructive deposits. And we’re talking of two-thirds of the population who have only transactions, no deposits. And nobody’s aggregated that industry. Nobody has done something which would allow . . . you know, kind of like an Amazon Prime for that industry, that “What do you want? For a small fee per month, we provide you all the services.” So nobody has done that, so that is the vision we set after.

Andrew: So you were thinking that? All right, the first thing you did . . . in fact, before we even get to the first thing you did, you started researching. You started talking to people. Why did you go to an attorney in San Francisco? What was it that you were looking to learn from the attorney?

Safwan: I think the biggest thing that I discovered in that moment of thinking, so for anything to happen, there has to be a source of money, money that people could access. Like, if I want to give a loan, I have to have a balance sheet or I have to have a lender who can give me the money to give out as a loan. So the epiphany that came to me was that the money is already there, but it is stuck in the system. You’ll ask me where. So you earn every day. If you’re working, you earn every day. You work 8 hours, 10 hours. That money does not get paid to you. For whatever reason, it sits and gets accumulated for two weeks, and then you get paid. So the question I asked is that how much is that money? Turned out, the U.S. payroll altogether for the entire country is $5 trillion a year. Okay? Then the question arose that what is it per week and per two weeks? Turns out, it’s roughly $250 billion every two weeks. So that is $250 billion already earned but sitting with the employer.

So the first disruptive question I asked is, why are people giving a loan to their employers? Then I went to people, and I said, “Do you see it that way?” They said, “But we never ask that question.” But I said, “You are wealthy. You have a savings account. It doesn’t matter to you, but for the guy who’s living on wages of $10, $12 an hour, that’s [easily 00:28:08] living on a tightrope. For them, why do they need to give a loan to their employer if they need $50? Why do they go outside when they have this, you know, [inaudible 00:28:20] . . .

Andrew: Sitting there in their employer’s account because . . .

Safwan: In their employer’s hand. The employer actually doesn’t even know the fact that this person is suffering. So what I did was I went to attorneys. I went to wage and labor law, and I asked this question, that why is it nobody could answer this question? And they said legally, there is no reason. This two-week pay cycle is an artifact of technology. It has nothing to do with anything.

Andrew: Because a while ago . . . it’s getting easier now, but even to this day, it costs money to pay employees to run the payroll. And for a company to do it every day or every hour, every minute that it’s earned would just be exorbitant. And so they decide to do it every other week, or they decide to do it every week, right?

Safwan: Yes, exactly. That is one reason that it costs whatever, $1 or 50 cents or $2 every time you run payroll per person. But there’s another aspect to it which is that that money is like working capital for the business.

Andrew: You’re saying that in addition, they’ve grown dependent on that money.

Safwan: Yes, because it’s sitting in the bank. It’s almost like this. You or I would like to have certain amount of money in the bank. If somebody says to us, “Live without that money and invest it in the market,” economic theory would tell us that you don’t have any money sitting in the bank earning little or no interest. Why not put it into the stock market? But you say, “No, I like the feeling of having some money in the bank, some money in my wallet.” Employers are used to that cash flow. And believe me, many employers are running these contracting businesses, small businesses where they really need that money during that two-week period. So, by holding that money, they are serving whatever needs that they have. It’s called treasury or cash back, cash management. And I go into great detail on it in my book as well.

Andrew: We should mention the name of the book. It’s called, “It’s About Time: How Businesses Can Save the World.” It’s published, from what I remember, by Conscious Capitalism Press?

Safwan: Yes.

Andrew: Because, just to be clear, you believe in the merging of the two. It’s not just do-gooder for the sense of do-gooder and helping other people. You believe that businesses and people can do well by doing good.

Safwan: Not only that, Andrew, I actually believe that businesses are the force of good. I think America is not 50 states. America is 50 million businesses, or 5 million businesses, to be more accurate. That’s what America is. A successful country is its businesses, all together. [inaudible 00:31:11].

Andrew: I agree, yes, especially, frankly, when government fails us. It’s the 50 million . . . is that how many we have in this country? I have no idea.

Safwan: It’s 5 million to 7 million businesses.

Andrew: Five to seven. I had no idea how many businesses. It’s the businesses that are out there that have an opportunity to try lots of different approaches. I’ll give you one example that touches my life every day. I don’t like taking the train. I don’t like taking the car to get to work. I love cycling in to work. For years, the bike lanes in San Francisco were terrible. They’re actually . . . I used to take pictures of crashes to send my wife to say, “Please, don’t ride your bike. Look at how dangerous it is.” And then I stopped. And then all these different companies came out with electric bikes and scooters and put it in. Now, the city has to improve the bike lanes. They have to accommodate all these people. And it’s not because the city said it’s time. It’s because businesses said, “Hey, it’s time. There’s people out there.”

But let me come back to you. I can go on this rant for a little bit. So you did this research, and then you started talking to people and you said, “I’m not going to come up with my business,” if I understand this right, you said, “If you do this, I will run your division. If you take this and run with it, I will help you build it.” Right?

Safwan: Yeah. So, when I got this idea, I went to a lot of people who were my friends in the payments industry. And I suggested that, “Listen, this is the idea. It will work. I’ve done the math, and I’ve done the business analysis, the regulatory analysis. Let me use your company as . . . ” It’s like me walking into Apple, and I’ve got this addition to Apple phone. And give me the money and the resources, and this is what it will do. So I did that for a little while, because I didn’t want to build a company from scratch. Everyone said no to me. They said, “We don’t believe it. We don’t buy into it. Interesting idea. Makes a good PowerPoint. Don’t know. Are you really hungry? Do you really want to do this?” I tried that for a few months, maybe a little less than a year, and then I said, “No way. I’m going to start it.” So I became the first investor. And, at that time, SoftBank was one of the early investors in it. And this was, like, seven years, six and a half years ago.

Andrew: In PayActiv?

Safwan: Yes.

Andrew: Talk about how you connected with SoftBank. That was an interesting story.

Safwan: So, because I had a lot of time and I was spending most of it thinking, so where do you go when you have a lot of time and you want to think? You will go to a golf course. So I used to play a lot of golf, and I fell in love with the sport. And when you’re in a golf course, you meet all kinds of successful people. So one of my golf partners who’s over the years become a great friend, and I’ve even considered him a mentor, he would often ask me that, “Why don’t you do something?” And, you know, you meet a lot of smart people on golf courses, sometimes. And I would always say, “This is what I want to do.” And one day, he said to me that, “I believe that you’re going to be very successful. I’ll help you. Go do it.” And I said, “You’ll lose your golf partner.” He says, “You know, that’s okay. That’s a risk I’m willing to take.” And that’s how SoftBank came in, because they believed in the vision, which was not clear at that time.

Andrew: And the reason that they believed in it, if I understand this right, he saw caregivers making $1400 (sic) an hour and then asking for handouts, asking for . . . not handouts. Asking for money up front, an advancement.

Safwan: Exactly. He had experience and exposure to caregivers asking him for money, and he had actually asked me, same question that you asked me early on, “Safwan, are they just messed up, or are they not planning their lives better?” And I said to him, “No, this is the data. These are the stats of America.” And it was stunning, I mean, how he reacted to it. “It makes total sense,” he said. “Then that means there aren’t tens of millions of people in America.” And then he even went on to say, “But they are telling me that 2 billion people in the world that we could do this for, and you’re telling me that the money that they need is already earned. And it is just trapped in a system.”

Andrew: So how did you know that employers . . . because you were banking on employers going along with this, how did you know that employers would be willing to do this?

Safwan: I had no knowledge. I went to some small banks. I went to payroll companies. Everyone said, “Nice idea, and we’ll put it in the next year’s budget and think about it.” So I called a friend of mine who was in New Jersey, and I knew he had a few hundred employees, and I know that he, many, many years ago or 20-plus years ago, he had helped me with a loan of $800, and I was in an emergency. And the way he had helped me was very unique. I asked him for the $800. You know, after going through the entire trepidation of calling a friend and asking him for money and all that stuff. And I said, “Listen, I need about $800 and I thought I’d ask you, and I know you’re doing well.” He says, “FedEx or mail?” And that is how he did not even ask me why.

Because that moment was such in my life that not . . . I didn’t want to answer the question why, whatever my reason for that emergency was. That friend had risen in the whatever corporate world, and now he had a company with several hundred people. And I called him and I said, “Listen, I’m starting this new company,” and all that, and “Would you like to do it?” He says, “Safwan, I give advances every pay cycle of tens of thousands of dollars. I’m in Trenton, New Jersey. And it’s not an easy thing to carry cash.” And I said, “I want to do this.” He says, “Okay, then do it. And how can I invest?” And he became an investor in my company. And he said, “Do it in my company and let’s see what happens.”

Andrew: Wow.

Safwan: And lo and behold, Andrew, we started September 2013. Those employees did not even have a bank account. It was a pre-stressed concrete factory, dusty and all that, and a few hundred people working there. And we bought a $4,000 or $5,000 kiosk, put a vault in it, put a nice display on it, and gave them an app on the phone and said, “You can see how many hours you have earned and how many dollars they translate to. Click on it, a pin number will come to you on your phone. Go on this kiosk, click that pin number, and the cash will come out.

And this is when they first used it. And they said, “How much do we pay for it?” We said, “$5 for two weeks. You can use it as many times as you like. You cannot exceed 50% of what you’ve already earned. This is not a loan.” So they were taking their own money, and they were taking it in a timely fashion. It was not a loan. It was not creating debt. And it could never be a loan, because the moment the pay period ended, in their next paycheck, that amount was reduced. So if you were getting $1,000 at the end of the pay cycle, you would get $800 if you’ve already taken $200.

Andrew: And the reason you were able to do this is because you were connecting to ADP, even back then?

Safwan: No, there was no ADP connection, nothing.

Andrew: So how did you do that?

Safwan: The payroll system at that time was, I think, Paychex. And we just read the file for the . . . and they had a time and attendance system. We went ahead, our engineers went ahead and figured out a way to see the hours clocked in, clocked out as they were happening. We literally reimagined how we will . . . Literally, it’s like putting a sensor into the time and attendance system and reading it, and sending back a file saying that, “We have given out $25,000 this week. Please deduct it from the salaries and make us a whole.” And we did two things. We never asked the company to put up the money. We put up the money.

Andrew: For taking the data in and out? Okay.

Safwan: And for the money that was given to the employee. The employer was not financing it. The employer’s cash management remained exactly as it was.

Andrew: Your voice, you are getting sentiment . . . or teary-eyed as . . . I don’t know what the phrase is, as you remember this.

Safwan: Because it was a moment . . . teary. I think I just am proud. I’m . . .

Andrew: Emotional, I’d say.

Safwan: The way I would describe it, Andrew, everybody had said no and had so much paternalism around it, that technologically it cannot be done. On an economic business framework . . . you go Google and ask for giving advances to employees, and every article that would come out, “Never give advances to employees. It will create an accounting nightmare.” But very few have written articles that, by not letting people access their own money, you’re actually, in a way, monetizing and exploiting your own employees.

Andrew: So you now had one company that said, “Yes, we’re going to try it.” Did you get a sense of how it worked for them with their employees?

Safwan: Yes, of course, because we were running the data, we could see from day one to day 100 to day 200, “Oh, my goodness.” Then at that moment, the idea . . . I mean, I wrote a blog in 2014, which was “An Idea Whose Time Has Come” from, you know, Victor Hugo. And I said that, “This is it. This is going to happen. We are going to unlock the billions of dollars that are stuck. And when people will have access to that money, they will not have to go to predatory payday lenders and so forth.” That’s how we looked at it.

Then came, within a few months, a hospital in Louisiana called Baton Rouge General Hospital. Again, through somebody I knew, they said, “We will do it.” They are still using it till today five, six years later. Then another hospital. And it just grew from there until 2015, 2016, we kept growing, kept growing, but it wasn’t like what you’d call viral.

Andrew: Let me take a moment. I want to talk about my second sponsor and then come back. And I want to touch in the difficulty of getting the next batch of customers and then also some of the integrations I’d like to get into. But first, I want to talk about my second sponsor. It’s a company called HostGator. Safwan, I’ll tell you about this guy. When I do interviews , you see I have research as we’re doing the interviews. We have a producer and so on. Sometimes, people will invite me to conferences to do interviews on the stage. And they think, “Andrew’s just going to come and he’ll hang out.” No, I not only do research with the guests, but as happened when Jason Calacanis invited me to do interviews of venture capitalists at his conference, I interview the audience one at a time. “Why did you come here? What are you looking for? What do you want out of this?”

And I wanted help, so I put out this call to this guy . . . I put out this call on Twitter. I said, “Who wants to help?” This guy Sam Parr said, “I’d like to come. I’m new in San Francisco. I’ll come do it.” He came out with me, started asking the audience, “What are you looking for?” He wanted to understand what they wanted out of the presentation. He gave me the notes, and I did a great job. This guy Sam Parr said, “You know what? I’m kind of interested that Andrew actually maybe seems bigger than life online, but he’s just a regular dude. I could do this too.”

He put up a WordPress site. He put up a website on it called “The Hustle” where he was just telling stories of entrepreneurs and doing some real news on entrepreneurship in the startup world. He started to build it up. He built up an email list over a million. Now he has, in addition, this research arm that he launched recently that has, from what I could tell, about 1200 people who were paying monthly for his business research on the startup field. And the guy’s just doing really well. And Safwan, the reason I’m talking about him as part of my sponsor message is because he did it on WordPress with WordPress one-click install. You put your idea out there, you experiment, you see what you like, you see if people respond to it. If they don’t, you could adjust. If they still don’t, you could kill it and start something new.

If anyone out there is listening to me and they haven’t started anything yet, I urge you to go to HostGator, hit that one-click install, get a WordPress site, and start something bad, a terrible idea, just so you see how easy it is. And then improve it, or kill it and be totally fine. You’re not a failure for having killed it, because you’ve learned a little bit about how to set this up, and now your creative juices have started. Just like an artist who gets a brand-new notebook who starts drawing, and the first thing that they draw isn’t great. They don’t say, “I can’t believe I failed.” No, just let’s put another page up and start again. That’s the beauty of HostGator, that middle package that you get when you go to hostgator.com/mixergy.

By the way, when you add the /mixergy at the end, you get the lowest price that they have available. But when you get that middle option, you get unlimited domain hosting, let’s you be creative to the nth degree. Hostgator.com/mixergy. It’s great for you. They’ve got a bunch of other features that I’m not going to read off. I will say they have a money-back guarantee. But I’m also going to thank them for sponsoring the work that we’ve done here, Safwan.

Let’s talk about some of the difficulty of getting people to say yes. Now we’re getting to the point where it feels like once the idea is good, people are just going to go along with it. But not everyone was like your friend, an investor. What’s a time when it was especially difficult? Do you remember?

Safwan: Yes, of getting to “Yes” is a multi-stepped process, right? People, first, any time you give them something which is contrary to conventional wisdom . . . and, you know, people are anchored to what things have been forever, and they would say that it’s a behavior change on the part of the employer, because they don’t see their role in this process. Employees, for them, this is a life saver, whether they get it from the employer or get it outside. They’ve been doing it forever. They’re an industry for that.

So getting to “Yes” evoked a lot of different answers. I used to, myself, go to employers, call them. We used to call companies every single day and, you know, we’d come up with nice ways to describe the whole idea of building a narrative and a messaging and all that. And in my office, and I’m still in the same office, there was a big whiteboard where we put a headline called “Fifty Shades of No.” And we started listing those shades of no. The common question was “If they get access to money, they will get addicted to it and they’ll use it every pay cycle.” This is like saying that if there’s a two-week pay cycle, the addiction to the two-week pay cycle . . . you know, the two-week pay cycle is not considered addictive. But any time if you take money between the pay cycle is considered addictive. So we kept writing these questions, or how will they save money if we do this? And etc., etc.

And another question was that, “What will happen to my cash flow if I let employees take money between paychecks?” So we kept taking these questions and finding answers for them. So we would sit, you know, hours at end and finding ways to answer them. Ultimately, everything distilled down to real data. That what happens to the business that uses it, in terms of ROI, what happens to the individual that uses it in terms of savings, in terms of measured effect, in terms of psychological effect? Both, right? We have to keep both together.

In the businesses, we took about 18 months of data, and Harvard Kennedy School was provided that data. There were some researchers working there. They took our data off, maybe, you know, two dozen employers. Of 18 months, it’s called a longitudinal study. And they took the data, the times of transactions, how much money people took, etc., etc., and what was happening in the business, here’s what they discovered. A typical business will reduce its turnover by 19%.

Andrew: If they do what?

Safwan: If they provide financial wellness to their employers, which is what we were.

Andrew: Okay, this is a part of financial wellness. So any time they add financial . . . What else goes into financial wellness?

Safwan: Financial literacy, counseling, opportunity to access money in an emergency, and earned wage access, which is what we are called, earned wage access. So any time you have an environment which is safe for employees to actually get emergencies solved, it’s financial wellness. The ultimate addition to it is ability to save money. So we came with this package, financial security, personal dignity, and savings. All three are part of our package. So this employer started experiencing a very clear comparison. Those who used PayActiv, and those who didn’t use PayActiv. The turnover of those who used PayActiv was 19% less.

Another statistic that came out from this study was that the calls that they were receiving from payday lenders to verify employment before the payday lender gave a loan at a corner store. See, the payday lender has only tribal underwriting. “Where do you work?” “I work at the neighborhood hospital.” “What do you do?” “I do this.” “Okay, how much do you get?” “I get this.” The payday lender will give you the money against a post-dated check. We discovered that the calls . . . the hospital discovered, one of the big hospitals, that the calls had reduced to half. They were no longer verifying. That means these people were not taking payday loans.

So imagine, this is the depth at which we had to go into the data. And finally, a startling statistic came out that for each time they actually accessed the money, they visited the app 8 to 20 times.

Andrew: You mean they thought about it 8 to 20 times. It wasn’t an impulse. That’s what [inaudible 00:49:38] . . .

Safwan: Another way to look at it, this is their entire life’s earnings. This is what they had earned. They had no big savings account or a Merrill Lynch or Goldman Sachs account. This is what they were. This is their life. So they would visit it and kind of think about it or see their money accumulate, because every day, that would be a little more money because they were earning and we were reporting it in the app. So this data, when it got published by Harvard Kennedy School, it was two years ago, and maybe 18 months ago, and it made an op-ed in Wall Street Journal. They said that if large companies like Target and Walmart used it, they would save hundreds of millions of dollars, because their employees will not quit as fast as they did now.

So this was a very big sort of inflection point in our journey. On the side of the employees, we started now saying, “How is it good for the employee?” Now, of course, you know, if you relieve your headache, it’s supposed to be good for you. The question really was that was PayActiv a candy or a Tylenol? Like, are we that thing if you take . . .

Andrew: For businesses, were you a Tylenol? Got it.

Safwan: The individual. For the business . . .

Andrew: Were you eliminating . . . oh, for the individual. Okay.

Safwan: Yeah. For the business, it was clear that we were a high ROI value proposition. If a business just . . .

Andrew: Because just reducing churn was enough to justify.

Safwan: Because it’s millions, because churn is the biggest expense. The replacement cost of a person is $2,000 to $3,000 each time. So, if you have 100% turnover, so the employee would have, you know, turned over in one year, that means you’re hiding all the time, that’s expensive. On the other side comes the issue of how is it for the employee? Is it candy? Is it Tylenol? Is it vitamin? And it turned out that everyone that we surveyed and talked to, they said that, “I avoided a late fee. I avoided a payday loan. I paid a bill through this. It gives me peace of mind. It gives me peace of mind.” I mean, the refrain was huge.

And then we started doing what I call detail analysis, and it turned out that people were paying off their loans. People were not getting into loans, because their need was usually $50 or $100 or $200. And just the access to the money made them planners. Just the knowledge that . . . it’s like you. Think about it. If your refrigerator is stocked with food, the urge to eat constantly would be less. If you’re starved for the entire day and you hit your refrigerator, you will eat more than you planned for. It’s grazing versus binging. The moment you allow grazing, people do not have a need to binge.

Andrew: So you’re starting to say, you’re starting to show that this actually eliminates pain for the employee and for the employer. And the more data you have it, the better your case is to businesses to get them to sign on. I’m looking at “The Wall Street Journal Opinion.” It says that Walmart had by then already tried it. How did you get Walmart to try this?

Safwan: So Walmart, of course, is the world’s largest employer of hourly workers. They have over one and a half million people. There are two and a half million, 2.2 million people total, but one and a half million are hourly workers. It is in their best interest to have a workforce which is engaged, which is empowered, which is lower turnover, because that’s how that business is run. They were trying a lot of different things, budgeting and planning tools and literacy tools. And by this time, PayActiv was continuing to grow and make some waves in the industry. At some point they discovered us. I knew that they were looking at these things. We were calling on them as well. But nothing had happened, because Walmart is, you know, the largest, greatest win to have in this industry.

So they approached us in, I think May, two years ago, 2017. And data of our studies was, you know, making it into the media and press here and there. So they must have read it. And they said, “Would you consider being part of a budgeting app that we are thinking about deploying in our company?” And I said, “Yes, I think this will work.” And we went live in December 2017. And official numbers are that several hundred thousand people use it every month. These are the official public numbers.

Andrew: And it is . . . I saw even more of it. This is the direct to cash app that they’ve got?

Safwan: That is also . . . we provide direct . . . So a user can get money that they’ve already earned, a portion thereof. They can get it moved to their bank account. We will move it to the bank account.

Andrew: So no more of the ATM as a requirement.

Safwan: No, that was very early on, because I didn’t have any such relationship. Today, any customer of PayActiv can walk to a Walmart and pick up cash. And the other thing is we can move it to their bank account. They can also pick it up as cash in the Walmart stores. So the role of Walmart in capitalizing and creating this equal system for lower-income workers has to be celebrated.

Andrew: Why do you think . . . there’s a part of me that’s very cynical. It says, “Everyone is only in it for themselves. It’s not going to work unless . . . ” Why do you think that people who could get their money out faster are more likely to stick with a company instead of saying . . . Like, I remember when I was in school and I was getting paid hourly. I mean, I didn’t like the job, but I had to stick it out until the payroll period, because who knew if I could even get it. Yes, technically, I could, but it becomes more difficult. Then you get the payment, and you’ve earned even more. Why are people sticking around longer?

Safwan: Because there are two types of jobs now. The nature of work has changed. There’s a task-based employment, and there is a job, payment is made every two weeks. As now you know, Andrew, millions of people are working in task-based jobs. So they are an option for everyone. Before you take a job in Macy’s, you will say, “Hey, why don’t I deliver for Grubhub or drive for Uber?”

Andrew: Right.

Safwan: They’ll give me a task. I’ll do the task at my own time scale, and I can get the money. So they are competing for a gig worker.

Andrew: Got it. And if you could get paid faster through Uber, then you might as well just go do Uber so you could get paid faster. All right, I’m not really that cynical. I am just always looking to understand, like, what’s the angle.

Safwan: Another thing you can look at too, if I ask you something in a sort of rhetorical question. What is that industry in this world which is not real time?

Andrew: Right.

Safwan: Media and entertainment is real time. Purchasing, real time, 24 by 7, right? You go to Netflix. You can see anything that you like. If you miss it on television, you can see it in streaming somewhere. What about e-commerce? You can buy anything. What are they shrinking? They’re shrinking the time. What is a drone going to do? It is going to shrink the time it takes for you to get your product. Which is that one industry which is stuck in a two-week or one-month cycle? And there are compelling forces keeping it that way. That is the payroll industry.

Andrew: And now, you do it. I get it. I get it. And by eliminating the expenses, by making it less . . . by not adding expenses for employers, that feels like the huge win. The part that scares me about this is I’d like to do it for us. Who cares? Pay you every minute for all I care. I just don’t know how much work is it going to be to do it. But you guys just do it because you automatically integrate with what they have already.

Safwan: Let me think of it this way, that what is the unit of work? If you had to have a unit of work, what is it? It is time. And what is time, really? It has a monetary value to it.

Andrew: And so now, you’re starting with this. You’re going to continue to add more financial services for the people that you serve. And the people you serve are not the companies, but their employees. Right?

Safwan: That is correct.

Andrew: You know what’s going to stick with me throughout this whole thing? It’s the way you’ve expressed yourself. There are few very touching things, not just that you said, but the way that you expressed it. The emotional connection that you have with the business that you’re in is something that I strive for and I feel I’ve lost a little touch with. And I like seeing it in you, and the way also that you took my more, not challenging questions, more cynical questions. They’re coming from a place that I want it solved for myself, and I like seeing that in you.

I always came from the sense that I knew who I was. I was an entrepreneur. I believed in business. But I want to just reconnect with that, to reconnect with the mission, to care about it more than just the day to day. To care about it more than just, frankly, the money that comes out of it. And I like seeing that someone as smart as you, as accomplished as you is seeing that too. It feels less quixotic and much more real. And I know you’ve done that for other people. I’ve read a lot of comments about what people have said about your book and about the talks that you gave.

The book, by the way, is called “It’s About Time: How Businesses Can Save the World.” What do you think the little kid in Pakistan that you used to be would think of who you grew up into?

Safwan: I can’t say for sure, but I hope that, you know, they could become 10 times better than me.

Andrew: Good place to leave it. The company is PayActiv. I’m really appreciative of the two sponsors who make this interview happen. If you’re looking to host your website, go check out hostgator.com/mixergy. And if you want to hire developers, go to toptal.com/mixergy. They’ve been with me for a long time. They’re great companies, and I urge you to support them as they have supported us here. Thank you. And Safwan, thank you.

Safwan: Thank you very much, Andrew.

Andrew: You bet. Bye.

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