Kurt Lin, Co-Founder & CEO of Pinwheel — creating a fairer financial system

In today’s episode, Kailee Costello sits down with Kurt Lin, Co-Founder & CEO of Pinwheel, a leading payroll connectivity API provider. Pinwheel’s mission is to create a fairer financial system, by enabling consumers to share their payroll and income data with financial institutions, which then use this data for direct deposit switching, income and employment verification, earned wage access, and more.

“What we are providing is a foundational piece of infrastructure that will be used by every single builder, innovator company in financial services … if you look at the really big players in financial services and fintech for the next 5–10 years, more than half of the really big product bets they want to make fundamentally cannot exist without us”

In this episode, Kailee and Kurt discuss:

• Pinwheel’s vision to help fintechs and financial institutions to build products that will lead to better financial outcomes for customers

Kurt: I have two co-founders, and the three of us started this journey by trying to build our own fintech app. Hopefully your audience is familiar with what a HSA is (Health Savings Account). If anyone has ever had one, they know that it’s a terribly hard thing to use. Worse yet, the majority of Americans in the country actually live paycheck to paycheck, so they don’t have the cash flow to actually be able to pre-fund and use the account.

So we realized you could actually solve this problem by automating all of it. So we developed that app, brought it to market and then realized very unfortunately, that while there’s a lot of demand, everyone was like, “hey, I want to use this thing. Do you guys support my payroll system?” .. so we spent all of our engineering hours building integrations versus building product, which isn’t great early on in the company’s lifecycle. So we tried to look for a solution out there and couldn’t find one, and then realized that there were actually hundreds of thousands of companies out there like us that needed access into these payroll systems in order to build what they wanted to build. It was at that point that we sunsetted the app, and really focused on being the infrastructure provider, unlocking the data around who someone is, how much money they make, where they work, and making it really easy for other companies like us to use that data to build the financial products of the future.

Our core belief is that what we are providing is a foundational piece of infrastructure that will be used by every single builder, innovator company in financial services, big or small, in the next 5–10 years. The reason why we feel so confident about this is when we came out of stealth in June 2020, we had no PR strategy. We begged our friends at TechCrunch “please write an article as we desperately need leads”. So we got this article published, and in the first 72 hours we had 133 organic inbounds from Chase, Wells Fargo, Citi … to all the big fintech like Square, PayPal, Credit Karma etc. It made us realize that if you look at the roadmaps of all of these really big players in financial services and fintech for the next 5–10 years, more than half of the really big product bets they want to make fundamentally cannot exist without us. That’s when we realized “this is the mission — the vision is to help the people who are pushing the envelope to be able to actually build products that will better serve customers and lead to better financial outcomes for them down the line.

• The direct deposit use case for Pinwheel’s API

Kurt: In the simplest terms, what we do is we provide connectivity. It’s kind of a two-sided marketplace: on one side is the supply side that has really valuable data, and then on the demand side are the banks, fintechs and lenders that need that data. We are the connectivity point that allows them to access that information.

Why is that valuable? If you think about what you do in financial services, everything revolves around making decisions using data. If I’m going to apply for a mortgage, an apartment, an auto loan, or a credit card, they’re looking at me and saying “is this person someone we should approve and give this product to”. The problem right now is that a lot of the data that you need to make a good decision isn’t in the hands of the people making the decision.

We’re making it really easy to have that data in front of you at the point where it really matters. You can instantly verify identity and income employment in real-time, which has never existed before. Another use case, which has been where we’ve had the most traction is around direct deposits. If you’re a big bank, for you the holy grail is getting direct deposits because that leads to a high engagement, high LTV customer, and then it leads you to being able to then build on that relationship. If your direct deposits are here, and you’re spending money with us, I make money on your interchange. And then, I also can try and upsell you into a credit card and eventually an auto loan or a mortgage.

But it all starts with direct deposits. And the problem is, direct deposits are really hard to capture, because you’re either having to use a paper form, or you’re having to self-serve on some kind of portal that is really clunky. With our API access, we can abstract away all of the complexity and condense it down into just one click, and then you embed it in the account onboarding flow where there’s the highest intent. So, when you create a bank account they say “great, if you go and move your direct deposit over, we’ll be able to give you early wage access or these other cool products”. At that point, Pinwheel’s experience pops up, and then we take care of all the complexity in the back end and make sure that their deposit gets switched. In the first month, we’re able to help our customers get a 20% increase in direct deposits and up to 75% over their lifetime.

• Pinwheel’s survey insights on blindspots in the financial services industry

Kurt: We interviewed 2000+ consumers about their financial lives. There’s always been this big debate around consumer permission data around how the consumer didn’t know what they’re doing when they give their data and if it even helps them or not. The most telling stat amongst all the data that we’re able to gather is that more than 80% of respondents said that they were willing to give their information about how much they make and where they work (i.e., their income and employment data) if they were able to access better financial products — either a lower interest rate or something that made their lives easier.

It’s so obvious, and a no-brainer that that data should be included everywhere — but it’s not. The example that I always love to give is when there’s a teacher or a nurse who’s been in the same job for four or five years. What does that mean? Super stable income, very low volatility, the ideal borrower that you’d want to work with. The issue is because of the way that the FICO and credit score system works, they might have a score of 550 however they actually perform much closer to a 700 or higher, and they just need a chance to improve it. And what we need to do is to show that lender or that bank, “here is five past years of pay, look how stable this is, you really should be lending to them”. Closing that data gap is what can really help our customers, and the businesses out there in the market today actually build better businesses. Higher top line, lower margin, lower risks, it’s a win-win. Consumers actually can access better cheaper financial products as well, and then the whole system basically becomes more efficient and reduces risk and fraud along the way.

• How large financial institutions, as well as fintechs, are using this data

Kurt: In our first couple of years, all of our customers were fintechs. Anyone who tries to go to market with the older institutions, generally has poor outcomes … not that they’re not great customers, just because their speed of adoption is never as fast as needed to be in a game of survival. So we spent the first couple of years really fine tuning what we had with our fintech customers. Then the past 6–9 months we really started to see a major sea change, where the traditional advisors were like “wait a second, we need this too”, and it’s happening a lot faster than we initially anticipated.

• How the current macroeconomic environment has increased the need for real-time payroll data

Kurt: First, you can’t go an hour without hearing someone say the word “macro”. Just to level set here: we’ve been in a 13-year bull run, largely driven by declining interest rates. Now, it’s kind of the regression to the mean, where we have rising rates, and I think for most folks, what that means is less of a focus on pure growth. Instead, let’s talk about the quality of revenue and the quality of that growth and margin management especially. That translates to, at least for banks, and lenders specifically, a keen eye on profitability, which for most people means really good risk management and really good fraud management, and firming up cash flows and deposit growth. The good news for us and for people who kind of saw a bit ahead here is that it’s now like, ”hey, deposits are now more important than ever, let’s pull up the balance sheet”. With our deposit-switching products, we have really been able to help drive that.

Second, is “let’s reduce losses here”. How do we do that? We need better data. We need real time data to actually understand what’s going on in this consumer’s life. What we’ve been able to really help with is see that this person, maybe they’ve unfortunately been laid off or that they’ve been furloughed or in some way had their employment impacted. It doesn’t actually help the lender to just let it default. If you can get advanced signal months ahead of time, which we can provide, you can actually say, “hey, wait a second, let’s pause, but give them a loan modification, give them time to get back on their feet”. Then once they do, you actually can cover much more than selling that loan for pennies on the dollar to a collector. There’s this element of real-time risk management that we’ve been able to really help with. It’s the same thing on the fraud side. Now more than ever, fraud has been a really big thing, and, especially with crypto, fraud rates are at all time highs. So I think there’s really a keen eye placed on “how do we minimize risk across the board?” because that’s actually the biggest driver of loss rates.

• The next generation of use cases for Pinwheel’s API

Kurt: The thing that we launched last year that’s picking up a lot of traction is around Earned Wage Access. There’s always been this holy grail type notion around, “can we get people paid every day?” It’s kind of an abomination that you work a day today, but you don’t get paid until two weeks later. Historically, the way that people have done this is, “I’m going to go to an employer like Walmart and say, if you want to give me your data, I can then offer this service to people. And the way that I can make money is I’m going to charge, you, Walmart to provide the service because the ROI for you is in the form of employee engagement and retention”. It’s really hard to scale that, and what we’ve realized is we can actually bring this directly to the consumer because we connect not only to payroll systems but also to time and attendance. So, if you sign up for a Chime account, for example, and you want to access your wages today, you say, “Yes, I want, my pay advance today”, we can look and say, “Okay, we know that you worked your shift today at Chipotle, we know that you’re still actively employed, and we know that you’re going to get paid in two weeks”, and we can claw back those funds in two weeks with our direct deposit bills. So you put those three things together, you have earned wage access as a feature. We embed that into a bunch of our customers’ apps — that’s how we’re helping folks make sure that they have the best suite of products going into the future.

Another example is around taxes. First of all, we see W-2’s. So we help people automatically get that data into the right place, whether it’s TurboTax, or wherever else, and file their taxes automatically. There are also add-on products to taxes that are really exciting. A lot of folks live paycheck to paycheck. If they can get their tax refunds ahead of time, they would love to. How do you do that? Well, we need to know where they’re going to end the year at so you can make an estimate about what their tax refund is going to be, and then you can confidently be able to afford them that money ahead of time. So what is a W-2? It’s basically just the amalgamation of all of your paychecks across the year. Because we have real-time visibility, we can see, every two weeks, what each paycheck looks like. By the time June comes around, we can say “okay, we can say with fairly high confidence that you’re going to end the year at 100,000 in income”, and then look at everything else and say, “Okay, you can probably forward them this amount of money”. The idea is basically leveraging all the data, which is way more than we thought was there originally in these payroll systems, to then be able to build new products and underwrite in new ways to provide advance liquidity or in some capacity a better experience for consumers.

• Pinwheel’s “north star” metric, and key factors that have contributed to Pinwheel’s success

Kurt: The number one thing is focus, and it’s the lesson I think I learned the hard way, because I get really bad shiny object syndrome. But there’s just something so powerful about — just make the main thing, the main thing. Figure out in the business model, what is the thing that really matters? It’s the reason why I think all the best businesses have a “north star” metric: Airbnb uses nights booked. Facebook’s was for the longest time DAU and MAU. When you keep that main thing, the main thing, everything else that doesn’t meaningfully move the needle on that main thing becomes a distraction, and you can very clearly say, “Don’t do that. It sounds cool. It sounds important, but it’s nowhere near as important as getting that main thing to be the best it can possibly be”

Our “north star” metric is conversion, meaning for every user who encounters Pinwheel, what percent of them are actually able to connect their accounts and able to switch a direct deposit or share their data. I wish it was 100%. It is not. But that for us, that’s the rising tide that lifts all boats, right, because higher conversion leads to higher transaction volumes and that leads to happier customers, a better performing product, and more revenue. So for us, the maniacal focus has just been getting that number up as high as possible.

• Why Pinwheel brought on the former first-ever deputy director of the US Consumer Financial Protection Bureau as an advisor

Kurt: First of all, I just want to say that Raj is one of the most exceptional human beings I’ve ever met in my entire life. I remember the first time I met him I was just wowed by his pure presence more than anything else. He was originally an angel investor, and then as we got to get to know each other better he really saw the vision of what we were doing. He came on board as a true adviser to the company. The reason why we felt so compelled to do that is because, when you look at the regulatory landscape today, the thing that’s popping up a lot of open finance is Article 1033 In Dodd-Frank, which basically states that consumer financial data, no matter where it’s stored, must be accessible by the consumer. That’s the foundational argument on which Plaid exists; that’s the foundational argument on which a lot of aggregators do what they do. The thing that is not as clearly defined in that is, “do payroll data belong as consumer financial data?” Dodd-Frank was largely intended to be governance for banks, not for the broader payroll system and open finance world. But you can’t just sit there and say, “Well, who you are, how much you make, where you work — that’s not the consumers’ data”. Of course, it is. So we’ve been working with Raj and a good number of Senate committee members on this. It’s one of those rare things that has bipartisan support. I think the thing that we are really focused on now is just proving that that data leads to tangibly better financial outcomes for consumers; we’ve been able to do that.

• Where Kurt sees Pinwheel 5 years from now?

Kurt: I love this question, because it hasn’t changed. For us it has always been the same thing, which is, we see ourselves as such foundational infrastructure. In five years, if we’re successful, every major bank and lender in FinTech in the financial services world will be using Pinwheel to power their most mission-critical use cases and products. What that actually means for us is from a coverage perspective that we basically cover 100% of workers in the country, and hopefully at that point beyond the US as well.

Number 2 is, we will have meaningfully moved the needle on the financial outcomes for consumers. Whether it’s getting widespread adoption for earned-wage access the right way with no risk, or pushing for a significant amount of underwriting and credit products that are not remotely tied to FICO because it’s such an unfair mechanism for a number of people in the country.

Check out the Episode on the platform of your choice here: Spotify | Soundcloud | Apple Podcasts

About Pinwheel

Pinwheel is the market-leading income and employment API. With Pinwheel, fintechs and financial institutions are empowered to build the next generation of financial products that will help create a fairer financial system. Pinwheel provides access to consumer-permissioned income & employment accounts and actionable insights that help them make sense of the data they need to tailor their tools and services for consumers. Pinwheel’s platform has enterprise-grade security protocols to power connections to over 1,600 platforms (covering 80% of US workers), over 40 time & attendance (T&A) platforms, and over 1.5 million employers. From that point of connectivity, leading fintechs and financial institutions (such as Block, formerly Square) leverage Pinwheel to power direct deposit switching, earned wage access, income & employment verification, and build innovative new products. Pinwheel is also a Consumer Reporting Agency (CRA), making the company the only provider in the space offering Fair Credit Reporting Act (FCRA)-compliant income and employment data that lenders can use actively in decisioning. Pinwheel is trusted and funded with $77M by top-tier investors such as GGV, Coatue, First Round Capital, and more.

About Kurt Lin

Kurt Lin is co-founder & CEO of Pinwheel, the leading payroll connectivity API. The son of two immigrant parents, Kurt saw how the lack of credit history created a greater struggle for them to access and secure financial products. This experience became a driving force for him and his co-founders to create Pinwheel. Kurt has been involved in multiple startup acquisitions, first Idean and later with Luxe.

Following Luxe’s acquisition by Volvo, he received an HSA and experienced similar challenges to those of his parents. He realized if you didn’t have money to pre-fund an account — which most Americans don’t — opening an HSA was basically impossible. Kurt and his co-founders set out to create a more automated HSA process and soon realized the key problem was actually inaccessibility to the data and controls in payroll systems. Thus, Pinwheel was born with the mission to build a fairer financial system.

About the Author

Kailee Costello is an MBA Candidate at The Wharton School, where she is part of the Wharton FinTech Podcast team. She’s most passionate about how FinTech is breaking down barriers to make financial products and services more accessible — particularly in the personal finance space. Don’t hesitate to reach out with questions, comments, feedback, and opportunities at kaileec@wharton.upenn.edu.

As always, for more FinTech insights and opportunities to collaborate, please find us below:

Wharton FinTech: Medium Blog | Twitter | Our Website | LinkedIn

Suggest a Podcast Guest: https://airtable.com/shrdbokQPxAJzgVh7

Hire Wharton FinTech MBAs: https://www.whartonfintech.org/recruiting