There are millions of people in the U.S. who never know from week to week whether they’re going to have enough money to pay their bills. Some work for fast food restaurants, large retailers or other employers who frequently change their schedules, reduce their hours without warning or even send them home if demand is slow.
And despite an improving economy and efforts to raise the minimum wage, worker pay grew at just .2 percent for the second quarter, the slowest pace recorded since the Labor Department began tracking wages and salaries in 1982.
Many wage-insecure workers have no recourse but to turn to payday lenders when they fall short on cash.
That’s the situation the four co-founders of San Francisco-based Even are addressing. The mission: to provide people with a steady, reliable income, so they don’t have to turn to usurious alternatives out of desperation. “We’re trying to solve the problem of income variability–a problem faced by many, many people working at the best jobs they can find,” says co-founder Jon Schlossberg. “We think we can build a fundamentally new type of financial institution.”
The Even app starts by calculating a customer’s average wage. The app connects to subscribers’ bank accounts, analyzes how much they made over the past six months and determines the average weekly paycheck.
“We think we can build a fundamentally new type of financial institution.”
Then, if their hours are cut one week or they make less money, Even will “boost” their paycheck with a no-interest loan. It’s like overdraft protection without the hefty fees.
If the worker’s hours increase the next week, Even applies the extra amount to their account, thereby paying off what they owe–and putting the funds into a bank account that Even manages on their behalf.
“We save money in good weeks and boost in bad,” says Scholssberg. Subscribers pay a fee of about $3 a week.
How did this idea come about? About a year and a half ago, Schlossberg and a friend created an app called Knock to Unlock–it provides a way to use an iPhone to unlock a Mac. According to Schlossberg, he made enough money to spend a year, in part, exploring a question that had plagued him for a long time: why people make decisions that might be bad for them.
During his research, he came across studies showing that, as he says, “When you don’t have much money and you worry a lot about how to make ends meet, it impacts your ability to make decisions. It actually spikes your cortizol levels and changes the chemistry of your brain.”
An app for the gig economy
Eventually, he and friend and entrepreneur Quinten Farmer came up with the idea for a business that could help address the problem of income volatility and the stress it causes. For now they are focusing on wage-earning W-2 employees, although they could expand to contract workers in the future.
The app captures the economic zeitgeist of the gig economy, where low wage and contract jobs have been leading job creation. New research by the think tank American Action Forum suggests that gig economy jobs are growing faster than overall employment, and that independent contractors alone accounted for 29 percent of all jobs added between 2010 and 2014.
A Federal Reserve study published last year found that 21 percent of respondents said they occasionally experience months with unusually high or low incomes. Ten percent reported that their income varies a lot from month to month. For those with a variable income, 42% said it was the result of an irregular work schedule. And lest you think this largely affects part-timers, read this: 58% of those with an irregular work schedule worked full time.
Heck, even some millionaires are living paycheck to paycheck, according to a recent survey.
Even has raised $1.5 million in two funding rounds. But for now, the company is taking it slow. It plans to keep fine-tuning the service until the beginning of next year. One bad move, after all, could have devastating results for someone living from paycheck to paycheck. “This is something fundamentally new,” says Schlossberg. “We’re dealing with people’s money and we have to be very careful.”
Anne Field is a freelance journalist who writes about startups and social entrepreneurship. A version of this article originally ran on Forbes.