Pinwheel CEO: Payroll Connectivity Gives Lenders View Into Consumer’s Total ‘Income Stack’

As we earn our daily bread — the money we’re paid at 9-to-5 jobs or via gig work — there are foundational units that translate into paychecks. We get paid by the hour (even salaried workers do) or by the Uber ride, DoorDash delivery or necklace sold on Etsy.

Increasingly, a significant percentage of consumers — 57% by PYMNTS’ last estimate — live paycheck to paycheck. Simply put, cash flows through biweekly pay periods or staggered payments across platforms don’t match up with the timing of our financial obligations.

In the digital age, earned wage access (EWA) and other financial products, not to mention traditional lending, can help smooth the gaps.

But as Pinwheel Founder and CEO Kurtis Lin noted, many lenders’ underwriting activities remain rooted in taking static snapshots of would-be borrowers’ checking accounts, determining liquidity and hoping at some point that they get paid back.

As he told PYMNTS’ Karen Webster, gaining visibility into consumers’ employment data and accessing those primary accounts can “go a long way into understanding whether this is someone you want to underwrite or not.”

Accessing such information hasn’t been easy or inexpensive, traditionally. But application programming interfaces (APIs) from companies, including Pinwheel, offer banks and digital-first companies a simpler way to connect to payroll systems as they seek ways to offer customers products that match customers’ needs.

Origin Story

The company traces its genesis to Pinwheel’s founding team’s previous efforts to create automated healthcare savings accounts (HSA). Building that product required having end customers connect their spending accounts to banking aggregators. Upon making qualified expenses, the HSA offering would make sure that tax savings would be added directly to paychecks.

Upon launching the product in 2019 and scaling, Lin said, “We had this ‘aha’ moment where we realized that we weren’t able to really grow our business because we were spending all of our time just trying to build more connections with the payroll systems.”

Lin said it quickly became apparent that thousands of companies needed the same access to payroll and other data. Fast forward to today, and Pinwheel focuses on acting as an infrastructure provider to help, in Lin’s words, “build the future of the financial system.”

Among those products, workers across a variety of industries can tap into EWA as Pinwheel helps track shifts worked and enables deposits into payroll accounts (with employers able to deduct those funds from subsequent pay periods).

The conversation came against a backdrop in which the payroll connectivity API firm said it had raised $50 million in a Series B funding round.

Read more: Payroll Connectivity Firm Pinwheel Raises $50M

Lin said the money will be used to triple the company’s headcount to 180 workers and broaden its EWA efforts, while branching into new areas like tax preparation. Pinwheel makes money by charging on a use basis (there’s a unit rate for each API call). The platform is modular and allows for the bundling of various services and data points.

Expanding Financial Access

Bringing more data related to the income stack, so to speak, can help expand financial access. With the right data on hand, lenders and other financial services providers can comfortably determine that a teacher or a nurse who has been at the same job for six years — and may have a 550 credit score — has stable income that allows them to “perform” much closer to a borrower with a 700 credit score, if only they’d get the chance.

We’re in the age now of cash flow-based underwriting, a marked shift from the way lending has traditionally been done. The age-old method has been to take a snapshot of post transaction or historical data to determine creditworthiness, and then lend out the money, hoping to be repaid and that there is no default.

Connecting bank data and payroll data gives real-time visibility into how money moves, he said. Thus, the signals conveyed to the would-be lender include the fact that borrowers are employed, making steady income and are in good financial standing.

Lin noted that the Pinwheel platform provides access to direct deposits, which in turn allows lenders to service loans by connecting to consumers’ payroll accounts and paychecks, in essence being guaranteed “first money out.” As a result, lenders may be willing to extend loans at lower rates in exchange for more visible or dependable repayment terms.

“That upstream signal to the lender helps them feel more comfortable — with more insight than just what’s in someone’s checking account today,” Lin said.

The company also operates as a consumer reporting agency (CRA) in compliance with the Fair Credit Reporting Act (FCRA). Lin noted that this designation mandates that if consumers are, as he termed it, “adversely affected by Pinwheel’s data and underwriting, the company is legally on the hook.”

Looking ahead, Lin said, as Pinwheel journeys to build the pipes that help control fund flows across the direct deposit rails to which it has access, it can help illuminate to consumers how they can save more and invest.

As he told Webster, “we don’t really see ourselves as simply a platform for income verification. It’s actually much broader than that. The real end goal here is to take information about how much you make and where you work — basically any source that shows how and when you make money — and provide that information as a building block for our customers to build entirely new products.”