In December I published an article about ZayZoon, an alternative option for those considering payday loans or another kind of short-term loan. Whenever I’m talking about short-term loans I have to remind everyone that:
I DON’T LIKE SHORT-TERM LOANS
I know that everyone has a different financial situation, but if you have any money left over from your paycheque after paying for the things you NEED, you use it first to build some savings, before you go out and buy the things you WANT.
If you’re in a situation where you genuinely make less money than you spend on things you need, and you really need a short-term loan to cover the gap, then ZayZoon is the better option for you.
ZayZoon advances you your already worked wages for a fraction of the cost of any payday loan and sometimes even cheaper than a credit card cash advance.
ZayZoon works with payroll companies directly and will give you access to your pay on your terms.
But why would ZayZoon do this? Why would the payroll companies want them to do this? And ultimately, how does it all work and why do we care?
To get the answers to my many questions, I asked Tate Hackert, founder and president of ZayZoon if he would do an interview… and he agreed!
THE INTERVIEW – PART 1: THE BUSINESS
Beau: Hi Tate! So I watched the presentation video you have on your LinkedIn profile. Was it for a payment conference?
Tate: Hi Beau! Yeah, it’s funny because no one really knew about that conference, but it was very well put on. Amanda Lang, previously of BNN and now Bloomberg, was the MC for the event and there were payment professionals from all over North America who attended.
Beau: Oh nice – I like her. I used to watch the Lang & O’Leary Exchange all the time.
Tate: Ya, she did an amazing job of MC’ing and moderating the various panels. It was here in Calgary back in June 2016, and they held a competition for the top Financial Technology company, the inaugural “FinTech Cup”.
There were 5 of us that competed, from I think, a couple of hundred companies that submitted applications. The purpose was to pitch the business, and the most viable business – and most innovative business – walked away with the “FinTech Cup” and $20,000.
Beau: $20,000! Wow – and the fact that it came down to you and 4 other competitors for $20,000 is crazy to me.
Tate: It was a great event!
Beau: So were you already funding ZayZoon at that time?
Tate: Yeah, we had been around for about a year at that time, but we hadn’t yet launched our full service product, which we actually just launched 3 months ago. Funded or not though, $20,000 is a nice to have, especially as prize winnings!
Beau: And what do you mean by your full service product? Were you doing anything before 3 months ago or was ZayZoon still in the works?
Tate: Yeah, I mean lots of time was being spent simply creating the software and getting all of our necessary ducks in a row, but we were also operating with a manual process.
The manual process consisted of us doing a pilot with a couple businesses in Calgary and literally people would request their wages and we would call the payroll clerk to ensure they had actually worked those hours – very manual.
What we have now with our automated solution is a really slick integration with payroll platform – PaymentEvolution.
PaymentEvolution is a payroll company out of Toronto that does payroll for around 15,000 businesses across Canada. By integrating with their platform, we are able to give hundreds of thousands of employees access to their already worked wages entirely through an automated online portal.
No more manual stuff – phone calls, e-transfers, etc.
Beau: And when people request their wages early, do you just have them pay it back on their next payday?
Tate: Yeah, well 20 days is the average payback period. We simply request the money back on their payday after next.
So if you’re someone that’s getting paid bi-weekly, the advance can be as short as 15 days or it can be as long as 29 days. A side note though, because people are simply requesting their own money early, they can feel free to repay us earlier than that payday after next too.
Beau: Ok, and do you need a certain number of days to have elapsed in their payroll period to give them money? What other requirements are there?
Tate: The basis of what we are doing is simply paying people the money they have already earned. And even then, we only actually pay them out a certain percentage of their already earned wages.
So I guess the first requirement is that you are employed, and in fact have some banked hours – you’ve worked this pay period. That is pretty well it.
As far as the percentage of your already worked hours you are able to access, and the speed of the service (we can process someone in under 10 seconds) is a bit of a secret and forms the basis of our proprietary algorithm.
Beau: Totally makes sense – I have a question about that though. You just get the ability to look into my payroll information and verify that I indeed have earned it, but it’s not like you have the right to go and take it, right?
Tate: We sort of do. Essentially when you sign up with ZayZoon, you agree to pay us back on your payday after next, so in that sense, we do. We wouldn’t have much of a business if we just gave out money and didn’t require getting it back – Haha.
Beau: So can you run me through what a user would see?
Tate: Of course. Take PaymentEvolution as an example, they do payroll for about 250,000 employees.
These employees have access to an online portal that allows them to see their paystub data, T4, benefits – everything.
From this portal, they can also access ZayZoon. At that point, they literally just choose how much money they would like to access and click confirm.
Beau: I really like the PaymentEvolution set up, because I currently get paid via ADP for my day job, and ADP is not even close to PaymentEvolution for online portals and integrations. App integrations are everything now, aren’t they? In terms of the world of FinTech?
Tate: Exactly. And ADP is starting to do that in the US.
They’ve released a product called ADP MarketPlace and it’s like an app store specifically for ADP customers.
There are other payroll companies that recognize this as a value-add as well and have started to release products. I think in total quite a bit of companies are starting to realize the benefits of partnerships and collaborations.
Beau: Ok, so do you have any stats on how many PaymentEvolution clients you have right now? And do people seem to be liking it?
Tate: People are loving us. The feedback we have been receiving has been outstanding; people can’t believe how inexpensive it is and how accommodating and customer orientated we are.
Customer support is a big one for us, it’s easy right now because we are so small, but as we grow it’s something we will have to work to maintain.
People are still hesitant towards FinTech, and especially a product like ZayZoon that is completely new – customer support and interactions can go a long way for the brand.
As far as numbers go, out of the PaymentEvolution employees who have been made aware of ZayZoon, the initial uptake has been incredible and we expect to service about 10% of all employees.
Beau: That’s exciting. What made you think payroll systems would be a good option for this?
Tate: That’s a good question. The original intent was actually to just go employer to employer and sign each one up and have a separate process for each one. I am sure you can start to envision how much work that is.
We started to realize that most companies use one of only about 6 types of payroll software and that it would probably be a good idea to target that software solution instead.
Beau: To get the volume that you need for what you are charging; you would need lots of employers. What are you charging actually? Is there a specific rate?
Tate: Our pricing model is constantly evolving, and will be for the next while as we continue to add features and add-ons for our customers.
We’re still in the early stages of our business. The basics though, if you want $100, around a daily average pay for many people, it’s not going to cost you more than $2.50.
Beau: $2.50 for a $100 advance until the payday after next, that’s really good. That’s like nothing. Seems like nothing to me.
Tate: Again, if we wanted to compare it to that word we all hate; Payday Loan, it’s about 85% less. And even comparing that $100 to a credit card like I think you did in your previous post, it’s still cheaper than that.
Beau: Do you still get negative press because of the Payday loan similarities?
How do you deal with the negative press?
It’s clear that you’re not a payday lender, I hope everyone understands that by now.
Other than the fact that your advances are connected to the person’s pay cycle – which is the only reason you’re lumped into that category – you bear no resemblance to the payday lenders.
Tate: I wouldn’t say we get bad press, but we definitely get questioned instantly from employers.
It’s completely understandable. Employers never want to put their employees in a rough spot, but when you start to explain the service in detail, they tend to get it right away.
But you are right, it is incredibly important that we do not get lumped into that category and I think right now being that we are new, it is an easy comparison to make – even I have made it in this discussion because of the vast price difference.
Moving into the future though, I think you will see that we actually become defined as an entirely new category. After all, we aren’t a loan at all, we are just giving workers access to their already earned wages.
Beau: It comes down to comparing the options. That’s what I did in my original post about ZayZoon, and it turns out that, even though it may cost more than some available banking options, it’s actually cheaper than the alternatives in that short-term situation.
Everyone tells us to compare interest rates only and we take flat fees for granted. Usually flat fees don’t seem like much when they are spread out over the course of a year
But when we discover that a credit card cash advance fee (before interest is even charged!) is higher than the entire cost of the ZayZoon product, we need to start rethinking about how we compare options.
Tate: Yeah, and I would echo what you said about your need to compare the options and be educated about what is available out there for you. For us, we find people are using us because they like it and like the idea of getting paid daily, or because of cash flow issues.
They get paid on the 1st and the 15th, and yet on the 2nd they have a cell phone payment, on the 5th they have a car payment, and on the 12th they have a whatever payment. Add in a grocery bill and having some fun and people can’t line things up.
Beau: It really comes back to why you exist in the first place: people need money sooner than their paycheque and the system does not accommodate that.
Tate: It’s funny because the world operates on a daily basis but people are getting paid on a “every fourteen days” basis, and to make up that gap, they end up accessing products like payday loans.
We are here to make sure they don’t do this any longer.
Employers have a hard time coming to terms with this, but the fact is, 51% of Canadians live paycheque to paycheque, and around 10% are actively using payday loans.
When we tell this to employers, their eyes widen and they realize how a product like ZayZoon could not only benefit their employees, but also benefit them by helping retain staff, increase productivity, etc.
Beau: I really would like everyone to have money saved, but I realize that’s a bit of wishful thinking on my part. I can say it, I can tell people all the time, but they have to make the decisions for themselves.
I just want everyone to be aware that they don’t have to spend everything that they make, forcing them into a situation where they need to borrow money.
As long as they are aware of this, and have full information, and then they happen to be in a situation where they need money now, then ZayZoon is the better option.
THE INTERVIEW – PART 2: THE MONEY LENDER
Beau: So now that we’ve heard about the business, I think everyone needs to hear your story and how you got into this business.
You have a lot of experience with lending. You started lending people money when you were 16?
What does that mean – like your friend needed to borrow a few hundred and you were like sure but you have to pay me interest?
Tate: How it started, Beau, was – I’m a Vancouver Island boy – I grew up involved in the fishing and construction industries.
When I was still in high school, I was fortunate enough to go on commercial fishing trips and come back with what I consider a good amount of money. I was an incredibly cheap kid, still am actually, so I was able to save and ultimately have that money work for me.
Tate: The loan game kind of just started. I got asked to do a loan and was provided with enough collateral to feel comfortable. I was protected a little bit; you know?
So I said sure, let’s try it.
A year later I got a cheque back plus interest and thought that was a lot nicer than what the banks were giving me.
Beau: Which was what, by the way?
Tate: I think it was 20%, if I remember correctly.
Tate: From then on, I started to advertise my services on Craigslist and Kijiji and grew my book that way.
Beau: How do you assess risk when it’s someone that responded to your ad on Craigslist? What were your parameters in that situation?
Tate: A lot of meetings.
I would put an ad up and get around 30 emails a day from people. Maybe more.
Beau: Did you post rates in the ad too?
Tate: No, it was negotiable, dependent on risk. A lot of it was high-interest loans. I abided by the Usury code obviously, but a lot of the loans were pretty high risk, and therefore higher interest.
Beau: What is the max interest rate in Canada?
Tate: 60% annual interest rate is the max in Canada. But the typical loan I did was maybe 20% – and that was to a pretty sub-prime person.
As an example, myself and the prospective borrower would go back and forth with email.
They would say I make X amount of dollars, but I went through bankruptcy or got a divorce, my credit’s shot, but I have been employed by the same company for 10 years and I’m looking for $5,000 to get myself back on my feet.
I would say, ok, based on that info, I’ll give you something for say 15%.
And other people would say I lost my job – they would be a really high risk – and I would say ok, 25%.
A lot in there were 10% or lower – if they provided collateral or were lower risk of course.
That is over simplifying it, obviously people have varying stories, and lots of risk aspects to consider, but that was the basic jist.
I would meet them in a Tim Hortons and feel out their story. I would do that a couple of times, just to see if there were any differences in their story – if anything changed.
It didn’t really matter what they needed the money for, but I would ask that because it’s a good indicator – the changes in the story can help you spot a liar pretty quick.
Beau: How did you come up with this process? From TV or detective movies? How do you figure this out when you are a teenager?
Tate: I don’t really know. I’ve always been good at reading people. I don’t want to say it came naturally but I guess it did?
Beau: Well, for you take all of this risk at such a young age you would have to be – and I read that in all the years you did this only 2% of people didn’t pay – is that like 1 or 2 people?
Tate: It was one person.
I had a loan of $3,600 go bad.
I went against my algorithm. I didn’t follow my rules of vetting someone and making sure they were generally an alright person.
I think part of it was also that I was a teenager and thought that growing fast, without actually putting the right processes in place, was cool. I was lending out what I considered to be lots of money and that was fueling the momentum.
Beau: How much would you have out at one time?
Tate: Maybe $120,000?
Beau: And the turnaround – how long would it take to get that back?
Tate: Lots of it was payments – like monthly payments.
The longest I would do was a one-year loan.
But a lot of those one year loans turned into 2 year loans. When you’re lending money, if someone says 3 months you expect 6 or 8.
And you always work with the borrower.
One of the biggest things to understand about money lending is that 99% of people are kind hearted and are simply in a bad situation. If you work through situations with them, you will end up getting your investment back.
Beau: And even though you’re just one individual, they’re all paying you the 10-20% interest on time?
Tate: Yeah – there’s always a story that comes with it – you just kinda work it through with them. You have to think of what the alternative for them is too.
Most wouldn’t qualify for a bank loan – they may qualify with an alternative lender for an installment loan – like a Mogo or something, but even those can be upwards of 39%.
The only other opportunity would be to go to an actual loan shark. I think most were quite ok with paying 10-20% to me.
Beau: But you got your start and now you have this awesome ability to assess risk, so you decide to start a business?
Tate: It really intrigued me and it was something I enjoyed (and still do enjoy). The business really started out of frustration.
Like I said before, 99% of people are kind-hearted and are just in a tough situation – cash-flows don’t line up, etc.
I was frustrated with the current solution available to people which of course for many, were high cost Payday Loans, so, along with Darcy Tuer and Craig Latimer, formed ZayZoon.
The entire premise was sort of built on the fact that people work hard but for a number of reasons have to wait 2 weeks to get paid. ZayZoon gives them access to that money at their choosing.
Beau: I need to know, how did you come up with the name? There’s gotta be some kind of story, right?
Tate: Haha, unfortunately, not much of a story! I was sitting in Hong Kong, where I did an exchange during university, and I think the professor’s name was Zayden or something like that.
I was bored in class and doodling and I wrote “ZayZoon” and for whatever reason, I liked it. I asked a few friends and they seemed to like it as well.
The idea was that I didn’t want to pigeonhole myself into something too professional, or something that could be related to payday lending either. I wanted something ambiguous. Something that represented a technology more than anything.
Beau: I like it, it’s catchy. I always say that you can call the company whatever you want. As long as your product is good, people will figure out how to type it in.
Tate: Thanks, I appreciate it.
To learn more about ZayZoon check out their website at zayzoon.com