Activehours raises $39 million for its new approach to cash advances – TechCrunch

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Nine months after raising $22 million for its unique approach to the cash advance industry, Active hours returned to the venture capital well and pulled another $39 million in funding.

Led by Andreessen Horowitz, with participation from the company’s early investors Matrix Partners, Ribbit Capital and March Capital Partners, Activehours has successfully raised nearly $65 million since its launch in 2013.

The Palo Alto-based company skirts regulations as a payday lender because it doesn’t charge interest on the money it hands over to customers. Instead, the company asks users to pay a small voluntary fee to access their money before their payday. I

For investors like hedge funds and banks, the allure of giving money to Activehours to hand out to employees before payday is likely a guaranteed rate of return on the money that the company derives from the “tips” it receives from its users.

The company would not disclose the size of its credit facilities, but for banks and alternative investors seeking higher returns than a savings account, cash advances can be attractive.

Activehours spokespersons say tips are no more than 15% (approximately) of the total amount advanced – and no user will receive more than $100 at a time.

The problem the company wants to tackle is important, there’s no doubt about it. According to data compiled by competitor Activehours, flexible salary the paycheck-to-paycheck stress and cost of living for working-class Americans is quite staggering.

Consider that Americans pay $32 billion in bank overdraft or insufficient funds fees, or $9 billion in fees and interest on payday loans, $6 billion in loan fees at pawnshops, $5 billion dollars in title loan fees, and clearly the numbers add up for people who are just trying to make ends meet. FlexWage estimates that nearly half of employees who earn an hourly wage spend three hours or more thinking about financial issues.

Unlike FlexWage or PayActiv, another competitor, Activehours does not work directly with employers. Instead, the company goes directly to consumers who are its users to get them to directly download the tool.

As we described in a previous article about the company, the service works like this.

Activehours does not take into account a person’s credit history. It does not ask for a social security number. Anyone with a checking account and a job can use the service, regardless of their employer, although Activehours has partnerships concluded with companies, including Sears Holdings (which owns Sears and Kmart), to make it easier for its employees to access their accrued pay before their paychecks arrive. The company has also partnered with Uber, whose drivers need only connect their banking information and Uber account information to Activehours to make a withdrawal after a shift.

In another interesting twist, anyone on the platform can “tip” on behalf of someone else on the platform, an act that is done completely anonymously. Think of it like paying a toll booth operator for your own car, as well as the car behind you.

It’s important to note that given the length of the loans and the repayment period of the service, these tips can end up being as high as the interest rates charged by payday lenders, according to the Consumerist website.

As they acknowledge, if someone pays off the Activehours loan in two weeks after receiving $100 and paying a $10 tip, that would equate to an annual percentage rate of 260%, which is similar to the exorbitant rates charged by payday lenders.

Yet Activehours presents itself as a way for its clients to take control of their salaries.

“Until a few centuries ago, people were paid as they worked. Employers started paying employees every two weeks because it was more convenient for them. Now we’ve built a way for people to regain control of their paychecks,” Ram Palaniappan, founder of Activehours, said in a statement. “With this latest round of investment, we are looking to significantly expand the team and further improve the product to continue to focus on maximizing money for everyone.”

In addition to funding, Activehours has added Stewart Ellis, a former executive at marketing technology developer BloomReach, as chief financial officer. Ramon Icasiano, joins as the company’s vice president of customer service.

The company’s application is available for download for iOS Where android.

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