Earned wage access provider Rain plans to raise another round of equity funding in the next six months to a year as it seeks to expand its services, the company’s CEO, Alex Bradford, said in an interview this week.

The capital infusion would also allow the Nashville-based company to scale its salesforce and expand its partnerships, said Bradford, who was a cofounder of the company in 2019.

The company will attempt to raise about $50 million, similar to a prior equity fundraising, Bradford said in the Thursday interview. He expects to attract money from some of the same investors, as well as some new ones. The company attracted $116 million in financial support last year, including $60 million of debt financing.

“We would like to step on the gas with our product roadmap,” Bradford said, noting the aim to offer ancillary financial services to employees. “There’s several products we think that are really interesting and complementary to EWA that we'd like to go build. And also we'd like to scale our sales and marketing and partnerships teams pretty significantly.”

Through earned wage access, employees can tap their earned pay before regularly scheduled paydays. The services have become increasingly available to workers over the past 10 years, as the number of EWA providers has proliferated. 

As Rain attempts to expand, it will need to distinguish its services from other large competitors also pitching earned wage access services to employers, namely rivals Payactiv and DailyPay.

EWA players operate under a variety of business models. Rain, as well as those two competitors, are distinct from direct-to-consumer wage access app companies because the former work through an employer to provide services, Bradford emphasized. 

As part of the trend of employers providing these services progresses, the direct-to-consumer app service companies will go by the wayside, he predicted.

“In 10 years, every employer with frontline workers will offer employer-integrated EWA – it’s 100% going to happen,” he contended. “That alone will kill the cash-advance apps.”

Nonetheless, not all employers will necessarily subsidize such services when they become ubiquitous, he said. At this point, a limited number of employers pay for the service.

At Rain, the bulk of revenue derives from $3 fees the company charges when employees seek an instant access option, as opposed to opting for free ACH services, or a free instant option via a Rain debit card, Bradford explained.

Some EWA providers also collect revenue from a slice of interchange fees that are generated when debit cards issued in connection with the services are used for transactions.

Consumer advocates have increasingly called for oversight of the burgeoning industry to protect employees from fees and interest rates. Regulators have been weighing how to oversee it. 

While the Consumer Financial Protection Bureau has said it plans to update guidance on regulation of the industry, some states have plunged ahead with new laws to put guardrails on the services.

Last month, South Carolina became the fifth state to enact a new law pertaining to the industry, following Kansas, Missouri and Wisconsin in a trend that began a year ago with Nevada. Those states have mostly put registration or licensing processes in place for companies in the industry, with some other related rules.

But other states, including California and Connecticut, have taken a different tack, moving to subject EWA payments to lending laws that have provisions for policing interest rates and transparency. 

At the end of last year, the CFPB signaled it plans to issue guidance soon on how consumer lending laws apply to earned wage access. The federal agency also indicated it backed California’s approach.

“Given the many developments in this market, the CFPB plans to issue further guidance to provide greater clarity concerning the application of federal law to income-based advance products,” the agency said in a Dec. 1 website post commenting on the California Department of Financial Protection and Innovation’s move to register and examine companies providing EWA services.

Hammering out certainty with respect to regulation is key for industry players and employers, said Bradford, pointing to a “feeling of frustration” with the slow development of such regulatory parameters.

“Everyone wants these regs to get finalized, sooner rather than later,” he said. “And employers want these regs to get finalized, because like I mentioned, there's so many employers that are on the sidelines still waiting for regs in their state, or at the federal level.”

He argues that more extensive EWA offerings from employers could aid employees in tapping funds for emergency services at lower costs than they currently pay when they turn to payday lenders that exact higher interest rates.

While Bradford said he’s not choosy about which regulatory path states take, he’s not fond of Connecticut’s approach, which seeks to treat EWA disbursements like loans and takes fees like those that Rain charges employees into consideration in a calculation of interest rates.

By Lynne Marek on June 21, 2024
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