The "Why"

A Letter

From the Author

I arrived in America in 1989 when the Total National Debt was $2.7 Trillion dollars and the more important Debt to GDP (income) ratio was 50%. Today, the Total National Debt is 21 Trillion Dollars and the Debt to GDP ratio is 107%. In simpler words, our total national income is less than our Debt for the first time in our history.

On a per person or per capita basis, adjusted for inflation, this translates to over $50,000 per person. Whereas in 1989 it was $15,000 per person. For a family of 4 the debt is closer to $200K.

There are many reasons that is the case. None good. And this is not the point. The stock market is, after all, doing fine. The government can surely handle this situation.

What I focus on is the plight of the lower income workers in the US.

On an individual basis –

  • Mortgage debt is about $13 trillion or $182K per household.
  • Student loan debt is about $1.2 Trillion or $50,000 per household.
  • Credit card debt is about $1 Trillion or $16K per household.
  • Auto loans are about $2 Trillion or $29K per household.
  • About 80M Americans are lower income, hourly workers.
  • About 12M Americans live at or around minimum wage.
  • Financial Stress is at epidemic levels.
  • Over 50M Americans have less than $400 in an emergency.

So, why do I care? Why should we care?

About 8 years ago I officially retired and embraced a life of golf, books, and Starbucks conversations. Everything was going swell until I started thinking about a conversation that I had with the CFO of a large publicly traded company. I was in Columbus, Georgia, at a site where there were about 6,000 employees, mainly call center operators and I was sitting in the cafeteria of my employers—they had just bought my company.

I saw employees picking up fresh food from the shelves and walking through the checkout line without paying. Not something you see outside Silicon Valley corporations. I tried to do the same; pick my food and walk out without paying. The cashier stopped me and said I did have to pay. I asked why the others did not. The answer—they paid by slip. They gave the cashier their employee number, which was then sent to payroll for payroll deduction on payday. So, everyone was paying, but the employer was deducting it at the end of the pay-cycle. “Aha,” I said, and moved on.

That evening I happened to meet the CFO over drinks and I asked him what if one of your employees came to you and asked for a $300 advance? He looked at me strangely and said, “Simple, we are a compassionate employer. The person would fill out a form, submit to the supervisor and in 5 working days the funds would be available to them.” He looked at me very proudly.

I asked him what if the person needed the money more urgently and lets also assume this person had already earned that money so it wasn’t really a loan but access to funds already earned but unpaid? The CFO said, “I don’t run a charity. The employee can go elsewhere to get the money.”

“Like where?” I inquired.

He said, “The church perhaps?”

I quietly walked away. There were over a dozen payday lenders around this business; each with well-lit windows. No church was in sight.

This conversation haunted me for a couple of years. On the side, I kept digging into data from the Fed and Pew research. And I did what any engineer would do: model the problem and try to solve it.

Here is what I found.

  • A typical lower income American was paying close to $150 per month or close to $2000 per year in fees for entirely avoidable reasons.
  • A total of $170 billion was collected yearly by small and big players—banks and non-banks.
    • $6-8 Billion for Payday loans (about $35 each time)
    • $25 Billion for overdraft fees (about $35 per incident)
    • $27 Billion in subprime and title loan fees
    • $10 billion in late fees
    • $43 Billion in subprime auto and buy here pay here loans

Given that lower income workers were averaging around $40K per year that translated to 5% of their earnings.

More importantly, further analysis revealed that these fees could have been avoided if workers had timely access to small dollar amounts of around $100 to $500.

I wondered, why are the ones who could least afford it being taxed in this way?

I did the normal American thing at this point; I gave this problem a name – Fin-Tax, (We all dislike taxes, and this was amounting to a Financial Tax), I Formed a company – PayActiv, and I set out to fix it the problem.

My solution was based on a simple thesis. The money is there, it is just stuck in the system. Like a third world country, our distribution system is inefficient. We are not too different from Third World Countries where millions die even when there is plenty of food, or plenty of resources. Quite a few countries come to mind. All in the Third World.

Coming back to the US – I had to determine where is the inefficiency?

  • The minimum wage or level of pay is what it is. A political issue. Not for me to touch.
  • The structure of pay, basically taxes, are what they are. Another political issue. Not for me to touch.
  • But the timing of pay is a variable that was available.

Money gets stuck because of timing. It is this timing of pay that I set out to fix.

Today, there is $140 Billion every week that is earned but unpaid. These are funds that employees have earned but cannot access because payroll systems are a batch process.

Simultaneously, the same employees, disproportionately the lower income, hourly wage workers, are taking overdraft hits, taking out payday loans, paying late fees to make ends meet. Up to $2,000 per year. A total of $170 billion.

Given this dire situation, why is a lower income worker giving a 2-week loan to their employer while paying alternative sources $150 every month in fees for between paycheck financing?

Imagine you are a business owner. Let’s say you run a coffee shop. You pay your landlord in advance, right? You pay your vendors upon delivery or set terms, yes? Your customers pay you upon receiving your service, true? So why are your employees waiting 2 weeks to get paid?

In those 2 weeks they are accumulating debt from payday lenders, online lenders, etc.


Businesses are not benefiting when employees are financially stressed.

In fact, the annual cost of financial stress is $300 billion when taking in account healthcare costs, hours lost due to distraction etc.

Let’s return to timing.

I went to employers and started educating them on this problem. I decided that I would create a non-lending solution to the problem. Without giving additional loans, or increasing wages, I would provide a mechanism for money to move faster between employer and employee; thus avoiding all the between paychecks timing dings. In essence, doing so would increase the purchasing power of the employee like a financial stimulus.

The initial reaction from employers wasn’t positive.

I called it the Fifty Shades of No!!

  • “What’s in it for us?”
  • “Our employees are just fine. We pay them well.”
  • “Oh, these people they will just misuse the system.”
  • “This is not our problem.”

I didn’t give up.

I launched PayActiv in 2013 and found a manufacturing business in Trenton, New Jersey—a small plant of 100 workers. Through us, their employees were able to access their earned income between paychecks. Small amounts, $100 here, $200 there. We enabled access of only 50% of their earnings. If they had $200 earned, they could take $100. On payday they would receive the balance owed to them. Simple.

One thing led to another, and Goodwill of Silicon Valley decided to adopt our service.

The New York Times wrote about Goodwill and our name hit the media. We won awards at various FinTech and HR conferences. Naysayers became believers (or at least stopped banging doors closed on us).

I plugged on.

The big businesses remained elusive. Major critics said IF this works, why isn’t Walmart, the world’s largest employer using it?

My investors stuck by me and in 3 years we built data across all 50 states. 500 employees here, 500 there, users were better off getting control of their own payroll timing.

Security, Dignity and Savings was our product. And it was working.

Academics wrote papers. Economists studied our model. Employers embraced our brand of capitalism.

Throughout this time, I implored to Walmart to look at what we are doing. In 2017, they approached us. They had been testing various financial wellness solutions like budgeting tools for their employees and adoption was very low. They asked, would PayActiv be willing to be a part of their strategy?

My answer was Yes.

In December 2017 we were deployed by Walmart and in less than 100 days we moved over $50 Million into the hands of employees between paychecks. Easily over $12 million in various timing related dings was avoided over that short period.

The real impact is not even measurable. How do you measure he restoration of personal dignity? How do you measure the feeling someone has when they can put food on the table for their family? How do you measure the psychological impact of paying off debt?

All these metrics are possible when we provide control to employees over the timing of their pay. All this is possible IF employers are engaged as part of the solution and not painted as evil, blood sucking parasites. It is after all in their best interest to have a less stressed workforce.

In conclusion –

Economic Freedom is possible with engagement from businesses. My idea for fixing the problem is a version of Conscious Capitalism. This country has empowered employers with enormous economic value and profits have never been higher. We need to invite the heroism of businesses, large and small, to become part of the solution.

Reward them for action. Reward them for making communities better at a granular level. Businesses have a vested interest. It is in the best interest of employers to be collaborators in solving the spiraling debt and tackling this epidemic financial stress which has been exacerbated by over 40 years of wage stagnation.

What is needed is re-imagination.

We need the will to first recognize that there is a “third world country” in the belly of America. We have left millions of people behind and ours is not a sustainable model. It is a dangerous model.

Seeing suffering and remaining in denial is not American.

Seeing suffering and confronting it, solving it, and standing together is American because it is human.

It is the lower income, hourly wage workers that can save capitalism. We must NOT ignore the plight of the working poor of these United States.

Ladies and gentlemen, fellow Americans… they deserve better.

They haven’t failed us. We have failed them.

It is time to be good again.

What’s needed is a change in the timing of pay.

It’s About TIME.

Thank you.

Safwan Shah