Latest / Leaders In Payments / Alex Kostecki, Co-Founder & CRO at Clair | Episode 284

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Alex Kostecki, Co-Founder & CRO at Clair | Episode 284 · Leaders In Payments

• 0:01
  Speaker 1: Welcome to the Leaders in Payments podcast, where we talk to C-level leaders from across the payments landscape.
• 0:06
  Speaker 1: We'll be discussing the products and services that impact the payment space today, as well as trends and predictions for the future of payments.
• 0:14
  Speaker 1: We will also hear stories from our guests about their journeys to the top.
• 0:18
  Speaker 2: So for us it was really key to put that in a bank account.
• 0:21
  Speaker 2: And what happens when you do that is your bank account needs to provide all the services you can get from other bank accounts, so we can't limit them and give them a prepaid card.
• 0:30
  Speaker 2: We got to give them bill pay.
• 0:31
  Speaker 2: We got to give them a savings account that actually gets them a reasonable amount of interest rate, which right now is 2% for us.
• 0:37
  Speaker 2: You got to give them access to an account and routing number they can use to pay their bills and some transfers, a lot of stuff, and that's sort of the really, really key component in what we've built here.
• 0:52
  Speaker 3: That was Alex Kostecki, the co-founder and chief revenue officer of Clare, and he is my special guest on this episode, episode 284 of the Leaders and Payments podcast, and I'm your host, greg Myers.
• 1:02
  Speaker 3: Clare exists to bring financial confidence to America's workforce.
• 1:06
  Speaker 3: They do things the right way, eliminating barriers that prevent people from becoming financially free.
• 1:10
  Speaker 3: Alex and I talk about Clare, what makes it unique in the market and how it is different from the on-demand pay and earn wage access providers out there.
• 1:19
  Speaker 3: We also discussed the unique story of the founding of the company and their journey through COVID.
• 1:24
  Speaker 3: Alex also shares his passion for marketing and back country skiing.
• 1:28
  Speaker 3: We've got a great episode ahead, so let's get started.
• 1:30
  Speaker 3: Hi, alex, thank you for being here and welcome to the Leaders and Payments podcast.
• 1:39
  Speaker 3: Hey, great to be here, so let's go ahead and dive in If you don't mind.
• 1:43
  Speaker 3: Tell our audience a little bit about yourself, maybe where you grew up, where you went to school, where you currently live, a few things like that, and then we'll jump into your professional background in a few minutes.
• 1:52
  Speaker 2: So I actually grew up in Switzerland I'm from a little mountain country in the middle of Europe and went to undergrad there, actually worked in West Africa for a bit, but I came to the US for business school when I was 23 and immediately went to work in financial services consulting and that's actually what ultimately led me to building Clare with my co-founder.
• 2:13
  Speaker 2: So we did a lot of stuff in M&A and I was working with American Express at the time and, for those listeners who might remember, american Express bought a company called Cabbage that did what was kind of the first iteration of AI underwriting using Stripe data, and their whole idea was, if you get access to extra data, you can underwrite people better.
• 2:34
  Speaker 2: In this case, for American Express, that would be small to medium businesses and they went through with the acquisition.
• 2:39
  Speaker 2: I think it was actually very successful.
• 2:40
  Speaker 2: And at the time, my co-founder and I we were really thinking you know, there's got to be an equivalent for consumers, because we were seeing, particularly in the US, how tough the lending environment is on consumers.
• 2:53
  Speaker 2: And our answer to that was HR Tech data.
• 2:56
  Speaker 2: It's the payroll data that's tracking the fact that you have a job and that you haven't been paid your wages yet, and for us it was really important to build basically the future of financial services by building a company that use that data to better understand people and give them a fair shot at budgeting and accessing good capital.
• 3:13
  Speaker 3: Well, that is Clare you're describing.
• 3:15
  Speaker 3: So, if you don't mind, maybe give us a little more detail about what Clare does.
• 3:20
  Speaker 2: So we're tangential to a space called the earned wage access space or on demand pay space.
• 3:25
  Speaker 2: But essentially what Clare is is provides a full service bank account, a bit like what you'd get through Chime or Cash App, with a unique part that you can connect it to your job and so you can start working at any of the 10,000 businesses we're connected to open this bank account, basically use it to transact every day, but you have access to your wages, always for free, on this bank account and can use it to gain interest on your wages to pay your bills, whatever you need.
• 3:53
  Speaker 2: So it's really getting more freedom to people based on what we know about them.
• 3:57
  Speaker 3: Are there specific verticals that you target, or is it really any company?
• 4:02
  Speaker 2: So we started off working directly with payroll providers and time and attendance systems.
• 4:06
  Speaker 2: Those are the companies that track your shifts and schedules if you're an hourly worker, and so we used to be really every industry in the same way, but we've started to spend a lot of time with employers making sure that our product brings them a lot of value, and this has really been the opportunity to see a lot of success in healthcare, which is an industry that's 30% understaffed since COVID and are really having a lot of trouble hiring and retaining staff to be able to meet demand, and so this is where we spent a ton of time.
• 4:34
  Speaker 2: And then hospitality manufacturing are also very important industries for us.
• 4:38
  Speaker 2: We've got something like 3,000 restaurants across the US, all of which they use clear.
• 4:43
  Speaker 3: So when you sign up the employer, what do you do to get the employees to engage?
• 4:50
  Speaker 2: There's sort of two approaches.
• 4:52
  Speaker 2: Either we just sit within the payroll system, and that allows employees to basically just learn about Claire when they're signing up for their new job in their new payroll system.
• 5:01
  Speaker 2: The alternative is we work with HR managers who get excited about the product themselves.
• 5:06
  Speaker 2: Usually, when we work with an HR team, the people we work with want to use Claire personally and want to sort of get everybody on board by.
• 5:13
  Speaker 2: You know, they'll send through some emails and we even sometimes have a Claire team that goes on location to help employees sign up.
• 5:20
  Speaker 3: And then can you talk sort of about the business model, how you make money.
• 5:24
  Speaker 2: So our business model is exclusively based on interchange.
• 5:28
  Speaker 2: So that's basically the fee that a merchant pays when you swipe your card at that merchant deposit revenue and any of the fees for the voluntary products that are on the app.
• 5:37
  Speaker 2: So if someone wants to do like an instant transfer or they want to send a check somewhere, we'll make some money on that too.
• 5:44
  Speaker 3: And then I have to ask about the name, because it's obviously unique.
• 5:47
  Speaker 3: So where did the name Claire come from?
• 5:49
  Speaker 2: So my mother-in-law is called Claire, but that's not the actual reason we call the company that.
• 5:54
  Speaker 2: Claire in French, which is my and my co-founder's mother tongue, means clear or obvious, and it also happens to the person's name, which I think is really warming piece of it, and so we wanted to call the company that, to sort of reference our French-speaking roots.
• 6:09
  Speaker 3: And, having been in this industry for a while, I obviously know there are other companies focused on sort of the on-demand payment solutions or the earn-wage access, as you mentioned before.
• 6:19
  Speaker 3: So what differentiates you from your competitors out there?
• 6:23
  Speaker 2: We actually came into this space a little bit after some of the companies that you may have talked to, companies like Daily Pay or Pay Active.
• 6:30
  Speaker 2: We started Claire in 2020 and I think they were maybe three or four years old at least at that time and what we came across was essentially an industry which had sort of done the first iteration of proving what you can do with HR tech data, which is basically attaching an ATM style app to payroll system and charging employees fees to be able to access their wages.
• 6:51
  Speaker 2: I think they proved sort of really importantly that this was a product that was needed, but there were obviously also some issues with that.
• 6:58
  Speaker 2: I think the first issue is you start getting involved in payroll processes.
• 7:02
  Speaker 2: Your employers might have issues sort of reconciling end of payroll, and so we encounter employers that have teams of two to three people that just do this at the end of the pay period.
• 7:12
  Speaker 2: The second thing is, and sort of more importantly for us on the product side, employees weren't necessarily actually getting out of a debt cycle when that happened, and the reason was that they were paying fees to access their wages, fees that could be construed to representing up to 300% interest rates and that felt really wrong to us.
• 7:31
  Speaker 2: The third thing is there is a regulatory change in the space, which we can talk about in a little more depth later, but a lot of regulators across the country, including California just last week, are passing bills that recognize advances on wages as loans, and it's really important for us to recognize that these are loans because we need to be regulating them as such, and so, for Claire, we took the stance very early on that we need to be going state by state, getting the required licensing and working with qualified lenders to be able to stay within the framework of these laws that we know a lot of regulators on the state by state basis are going to look at, and that's really what's allowing a lot of very large companies, like some of the companies working with today, networks of hundreds of hospitals across the US or large hotel groups, to choose us, because they understand that we can basically deploy across the whole country versus having a qualified answer depending on what region we're launching in.
• 8:25
  Speaker 3: So I would assume that that's a challenge and an opportunity having all those states with maybe different regulations.
• 8:31
  Speaker 3: I mean, is there a time when it becomes the US has government gets involved in it, becomes more of a national type of law or regulations?
• 8:39
  Speaker 2: I think this is something which, with the back and forth in administrations we're seeing of you know, republican back to Democrat, back to Republican is probably going to be difficult, because ideally you'd see these kind of moves be pushed by the Consumer Financial Protection Bureau and get to Congress and then to the Senate.
• 8:56
  Speaker 2: But that administration is losing a lot of its power and then regaining it in alternating fashion, and so it makes it quite difficult for them to be able to do that.
• 9:04
  Speaker 2: So invariably, what happens is states start saying well, state like California, for example, who's going to have a very sort of regulatory forward mindset, is going to say well, if they're not going to move on something, I'm going to do my own law.
• 9:15
  Speaker 2: And at the same time you've got Maryland, who passed something this year, you had Connecticut and New Jersey and Massachusetts all looking at regulation in this space, and the regulation doesn't start matching.
• 9:25
  Speaker 2: So from my perspective, we're probably going to go through another, maybe slightly less than a decade of state by state regulation being defined here before we see the federal government stepping in and making a difference.
• 9:38
  Speaker 3: Where do you see the payments industry?
• 9:41
  Speaker 3: Certainly you can answer this around sort of your niche of it, but where do you see the industry headed in, say, the next three to five years?
• 9:47
  Speaker 2: I definitely will answer for our first, just because there's so many different size payments industry and it's hard for me to speak to international transfers and stuff.
• 9:56
  Speaker 2: But as far as our part of the industry, I truly believe that connecting data linked to where you're making money to the way we underwrite people on the financial services we give them Is going to be part of the future.
• 10:08
  Speaker 2: It's just gives you such an advantage on being able to serve people in a fair way compared to what we see Consumer products like what we see at day or pay the landers on the street or money line that kind of stuff.
• 10:20
  Speaker 2: So definitely believe in that future.
• 10:22
  Speaker 2: But there's gonna be sort of a two step process to get there because the reality is today, payroll systems and employers actually own that data.
• 10:30
  Speaker 2: So whoever you work for, your boss actually owns the data on your earnings.
• 10:35
  Speaker 2: It's data about you, but they're the ones who own it and it's going by the payroll systems that are posting that data.
• 10:41
  Speaker 2: So in the short term, what's gonna happen is we're gonna have to sort of take that into account.
• 10:46
  Speaker 2: So that implies either working directly with employers and getting them to distribute the benefit or Another business line of ours which is working directly with payroll providers and recognizing that they're gonna have an opportunity of going vertically into lending, the same way that when a sales systems did with sort of a firm and clarnet.
• 11:04
  Speaker 2: So I think that'll be step one.
• 11:06
  Speaker 2: We're definitely seeing a lot of demand for our white label product right now.
• 11:10
  Speaker 2: Step two, I think, is going to be about sort of Making that data available for everybody else.
• 11:14
  Speaker 2: So we're seeing some initial steps.
• 11:16
  Speaker 2: There's some great companies out there, like pinwheel atomic.
• 11:19
  Speaker 2: We're trying to replicate what plaid did for payroll systems.
• 11:22
  Speaker 2: We're seeing these initial steps of trying to make that data available for consumers.
• 11:27
  Speaker 2: It's a super clunky, very long process and even though I love what they're working on, I think they've got a lot of work ahead of them before it's completely smooth, but they will ultimately get there and that, I think, will probably take about the same decade as it's gonna take for the lending regulation piece to come in.
• 11:41
  Speaker 2: And what's that happens I would expect?
• 11:43
  Speaker 2: Basically we're gonna see major financial institutions like whether it's chase or maybe some of the newcomers like cash up, being able to take advantage of that data and use it to advance funds or just lend longer term for people when we know where they're out of the jobs.
• 11:58
  Speaker 3: And does sort of the I guess method of payment, like they can take their clear I don't know if you call it a clear card, but they can take that payroll card that they've their account and can they use it in other ways.
• 12:10
  Speaker 3: I mean, they can basically use it anyway right by anything pay bills, all those typical things, right?
• 12:17
  Speaker 2: That part was extremely important for us.
• 12:18
  Speaker 2: I think we basically never saw on demand pay as a standalone feature, because when it is, you need to charge for it.
• 12:26
  Speaker 2: What happens is people don't end up in a better situation six, nine, 12 months down the line because they're basically not only getting less on their paycheck but there's fees that make their situation actually worse.
• 12:36
  Speaker 2: For us, it was really key to put that in a bank account.
• 12:40
  Speaker 2: What happens when you do that is your bank account needs to provide all the services you can get from other bank accounts.
• 12:47
  Speaker 2: We can't limit them and give them a prepaid card.
• 12:49
  Speaker 2: We got to give them bill pay.
• 12:50
  Speaker 2: We got to give them a savings account that actually gives them a reasonable amount of interest rate, which right now is 2 percent.
• 12:55
  Speaker 2: For us.
• 12:55
  Speaker 2: You got to give them access to an account and routing number they can use to pay their bills and instant transfers all that stuff.
• 13:00
  Speaker 2: That's the really key component in what we've built here.
• 13:05
  Speaker 3: You mentioned healthcare and a few other verticals.
• 13:07
  Speaker 3: Are they mostly in the US or North America?
• 13:10
  Speaker 2: Yeah, we've got so much to do in the US right now.
• 13:13
  Speaker 2: I mean on demand pay right now has maybe a coverage of 10 percent of the country.
• 13:17
  Speaker 2: There's another 90 percent just waiting for small companies like us and Daily Pay to take on.
• 13:22
  Speaker 2: Focusing on doing that, getting the regulation right, making sure our product is good before we overstretch ourselves, is really important.
• 13:30
  Speaker 3: Well, let's switch gears a little bit and talk about you.
• 13:32
  Speaker 3: Tell us about your journey to your role there as the co-founder and CRO.
• 13:37
  Speaker 3: Maybe give us a little bit of the background story in your career and professional background.
• 13:42
  Speaker 2: So I started off my career as an accountant, which taught me a lot about Excel modeling, but not a lot about what I wanted to do in life.
• 13:49
  Speaker 2: Then I ended up at NYU, which was my first few years in the US and was my opportunity to get a network, get a visa, meet people, learn a lot.
• 13:59
  Speaker 2: That's ultimately where I ended up at Deloitte and Financial Services.
• 14:03
  Speaker 2: I think consulting was a really, really transformative experience for me in terms of understanding how to build a company, because we went through, as part of an M&A team, something like one business model in deep study every four to five weeks, so really had the opportunity of understanding which companies have moats, which companies have the ability of really moving an industry in a certain direction versus others.
• 14:27
  Speaker 2: At the time, my co-founder, nico, was.
• 14:30
  Speaker 2: He graduated Harvard, where he had been an hourly worker and knew the pains of not accessing your money early.
• 14:36
  Speaker 2: He was working at Chase on a few different projects, including UberMoney, which was attempting to do what Claire ultimately did for Uber drivers.
• 14:44
  Speaker 2: So we started chatting and compared the cabbage story with what was going on with UberMoney and it really clicked at that time that there was this opportunity of taking HR tech data and applying it to financial services to make a difference.
• 14:57
  Speaker 2: I have to say that the fact that there were two of us, the fact that we were very complementary in the way we thought about business, really helped us get the confidence of quitting our jobs in quite early in our careers to go start a business and basically start fundraising and get a lot of people on board with us.
• 15:16
  Speaker 3: You started in 2020, so right before the pandemic.
• 15:19
  Speaker 3: How scary was the pandemic for you guys?
• 15:22
  Speaker 2: Oh my God, that was the whole thing.
• 15:24
  Speaker 2: We basically were raising our seed round in the middle of when it hit.
• 15:28
  Speaker 2: Actually, we were in San Francisco, in downtown, looking for we had a number of meetings with VCs lined up, all of which were being delayed or they were saying, well, let's just take it on the phone.
• 15:41
  Speaker 2: None of them were ready to invest at that time.
• 15:42
  Speaker 2: I mean, everybody just had no idea of what was going to happen to the world, and so just a lot of volume of conversations.
• 15:49
  Speaker 2: And that's when we came across Aditi Malewa, who was former Google product manager, then became a VC and then ultimately ended up leading fintech at Upfront Ventures, and she was just like, look, this is going to take years to build anyway, and you guys have absolutely the right attitude, I'm in and that sort of hit.
• 16:06
  Speaker 2: A series of dominoes of great other investors that followed in, including the folks that built Venmo and Cash App and Plaid, and all of 2020 was just sort of heads down building what ended up being big remote company.
• 16:18
  Speaker 2: But when we brought our heads up in 2021, like we're and raised our A, we were really thankful that Aditi had been there for us in March and April.
• 16:26
  Speaker 3: So we didn't really cover this.
• 16:27
  Speaker 3: I do want to touch on it before we move on.
• 16:29
  Speaker 3: Is your sort of go-to-market strategy?
• 16:32
  Speaker 3: Is this mostly feed-on-the-street salespeople?
• 16:34
  Speaker 3: Is it through partnerships?
• 16:36
  Speaker 2: a little bit of both, we basically have the perspective that, on demand pay for this multi-medium business category is going to have to be done through partnerships.
• 16:45
  Speaker 2: Going to close 100 to 200 employee businesses over the phone is going to be more distracting for them than they really deserve.
• 16:52
  Speaker 2: It's easier to go through the payroll provider they've already acquired, and so for us, on all the small business side, we definitely focus on partnerships.
• 16:59
  Speaker 2: That being said, there's very large employers out there that have very complex systems with which we work on launching, and so for that we've got an enterprise sales team that's been doing a really good job at bringing in employers with 20, 30, 40,000 employees a pop.
• 17:14
  Speaker 3: Well, let's turn back to you, so tell us something you're passionate about, maybe one work-related passion and one personal passion.
• 17:22
  Speaker 2: Passionate about at work is marketing.
• 17:24
  Speaker 2: I think this is kind of my latest passion.
• 17:26
  Speaker 2: Because of our distribution model being partner-based, we're always gingerly investing in marketing, making sure we would see an ROI on everything we did, and we're at this point where we're really sort of investing a little bit more, and it's been fascinating to see how a marketing can really give a soul to a company.
• 17:41
  Speaker 2: You've got a product that fulfills a problem and you've got sales that make sure you've got customers, but giving a soul to a company with a great story and a great brand is something that really makes a difference when you're talking to users and are building trust, and I love it.
• 17:54
  Speaker 2: I read books on marketing every weekend and I love spending time with my marketing team as well.
• 17:59
  Speaker 3: What about a personal?
• 18:00
  Speaker 2: passion Backcountry skiing.
• 18:01
  Speaker 2: It's the only affordable way for me to ski.
• 18:04
  Speaker 2: I'll be a pickup when I was a kid in Switzerland over in the US, and so as soon as I can make it out west, I definitely go, and I also go up in Vermont.
• 18:12
  Speaker 3: So you said backcountry skiing.
• 18:14
  Speaker 3: Can you explain for us non-skiers what that is?
• 18:17
  Speaker 2: Yeah, I'm sure you don't have much skiing down in Dallas.
• 18:19
  Speaker 2: We backcountry ski.
• 18:21
  Speaker 2: You put a pair of skins under your skis and you can basically use them to walk up a mountain and then go back down, which means you're in the middle of nowhere.
• 18:28
  Speaker 2: You've often got great wildlife around you.
• 18:30
  Speaker 2: It's just a great way to spend a weekend.
• 18:33
  Speaker 3: It's a good time to think about marketing too.
• 18:34
  Speaker 3: Yes, it is so.
• 18:36
  Speaker 3: Final question I like to get different people's perspective on this.
• 18:40
  Speaker 3: If someone's coming to you and they say, alex, we're interested in sort of this fintech payment space and we're thinking about going into this as a career, what advice would you give them for them to be successful?
• 18:53
  Speaker 2: I think you need to focus on the problem and industry vertical within payments you want to solve, for you know how sometimes we hear people say well, the AI space is full of hype, but AI works really well for some cases and not for others.
• 19:06
  Speaker 2: I feel like the payment space is similar.
• 19:08
  Speaker 2: There are things that are not going to change and there are things where there's a tremendous amount of opportunity, and so think about why you care about the payment space, what use cases you're trying to fix, and then go get a job in a payments company that has a mission or a product that you actually believe in, or spend time talking to investors in that space and see what you actually care about, so you can formulate your theory around what you want to do.
• 19:30
  Speaker 3: Well, we've obviously covered a lot of ground about the company and the industry and a little about your background.
• 19:35
  Speaker 3: Is there anything else you'd like to add before we wrap up the show?
• 19:37
  Speaker 3: Nothing comes to mind.
• 19:39
  Speaker 3: What would be the best way for people to learn more about Claire?
• 19:43
  Speaker 2: Best way is to hit up our website or don't hesitate to even ask me questions over LinkedIn.
• 19:47
  Speaker 2: I try to get through messages which aren't sales messages as much as I can.
• 19:52
  Speaker 3: Well, alex, thank you so much for being on the show today.
• 19:54
  Speaker 3: I know your time is very valuable, so I really appreciate you being here.
• 19:57
  Speaker 2: Awesome, thanks so much, have a good one.
• 19:59
  Speaker 3: You too.
• 19:59
  Speaker 3: Until all your listeners out there.
• 20:02
  Speaker 3: I thank you for your time as well, and until the next story.
• 20:04
  Speaker 1: Thank you for joining us this week on the Leaders in Payments podcast.
• 20:07
  Speaker 1: Make sure you visit our website at leadersinpaymentscom, where you can subscribe to the show and where you'll find our show notes.
• 20:14
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