How a Silicon Valley startup is trying to rebrand payday loans

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Once every few weeks, Myra Haq withdraws $100 or so from Earnin, an app that lets people borrow small sums of money. “I started using Earnin when I was a minimum wage intern so I could pay for [things like] the bus to work and food,” Haq said. Now that she’s no longer an intern making minimum wage – she currently works as a nanny, handles a children’s clothing company’s social media accounts, and sells clothing online – she still occasionally finds herself needing extra cash for doctor appointments or other unplanned expenses, and that’s where Earnin comes in.

Earnin knows how much Haq makes and how often she works; it figures out the latter by tracking her location to see when she is or isn’t at work, though Earnin doesn’t share this location data with third parties. The app lets her withdraw up to $100 a day, and never more than what she actually makes in a pay period, and then withdraws the money from her checking account once her direct deposit hits. Instead of charging her a fee or an interest rate for the loan, Earnin simply asks her to leave a “tip,” which can be used to cover the cost of transferring the funds, as well as additional operational costs.

The app bills itself as a way for people to “get paid the minute you leave work with no loans, fees, or hidden costs.” Haq sees it as a payday loan, albeit a “more ethical one.”

Payday loans, sometimes called cash advances, are short-term loans marketed to people who need cash quickly. Unsurprisingly, payday lenders typically target low-income people – a 2013 Pew report found that 58 percent of people who use payday loans have trouble meeting monthly expenses at least half the time and usually borrow to deal with “persistent cash shortfalls rather than temporary emergencies.” The loans generally carry higher interest rates than long-term advances or credit cards, and are often criticized for being predatory.

Earnin positions itself differently. For starters, it doesn’t characterize its advances as a loan. “Earnin is facilitating an advance on your paycheck,” a spokesperson told me. The company was founded by Ram Palaniappan in 2013. Palaniappan, who has a background in fintech, told me he came up with the idea while working at a different company where he often fronted employees the money they needed to cover expenses before payday after hearing them complain about overdraft fees. “It didn’t make any sense, because I thought I was paying everybody well,” Palaniappan said, but then he realized the problem was that employees “needed money the next day and could not wait until the following Friday.”

“When I left the company, the people I was doing this for wanted to know if I would still do it for them,” Palaniappan said. “That’s when I realized that if I didn’t try to make it into a product, I would feel bad about myself.”

Today, Earnin has raised more than $190 million in venture funding from a number of investors, including Andreessen Horowitz and Spark Capital. It has more than 100 employees and, according to Palaniappan, is used by workers at more than 50,000 companies. Through a spokesperson, the company declined to share active user numbers but said it often ranks among the top 10 apps in the financial space of Apple’s App Store, where it has garnered more than 60,000 reviews.

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