Innovation in the financial services and banking industries in the US has often been stymied by legacy banks creating artificial moats. Open Banking adoption lags in the United States as compared to the EU but regulations in the EU are forcing US financial services providers to embrace facets of Open Banking in order to remain competitive and do business with European companies and citizens. Open Banking ultimately gives the consumer or customer more control over access to their financial data. Pinwheel is a payroll API connectivity platform that allows payroll data to be made accessible for a variety of use cases. For example, with Pinwheel, payroll account switching can be done in a fraction of the time it took previously. The platform also allows for seamless verification of employment and income data and payroll-linked lending. As the US moves towards further opening up Open Banking, Pinwheel is there to power any payroll-related innovations.
AlleyWatch caught up with Cofounder and CEO Kurtis Lin to learn more about how Pinwheel empowers consumers through payroll connectivity and ownership of their payroll data, the company’s strategic plans, latest round of funding, which brings the total funding raised to $27M, and much, much more.
Who were your investors and how much did you raise?
We raised $20M in a Series A funding from Coatue with participation from Primary Venture Partners, SemperVirens, and support from existing investors, First Round Capital and Upfront Ventures.
Tell us about the product or service that Pinwheel offers.
Pinwheel offers the market-leading Payroll API, an easy way to connect to the large and fragmented ecosystem of payroll providers like ADP and Paychex through a single point of connectivity. Banking customers can use us to enable direct deposit switching, an automated way to move paychecks from an existing bank account to a new bank account. Lending customers can use us to retrieve account data around income and employment so that verification is fast, efficient, and has a lower risk of fraud. Fintechs can use to enable all sorts of new products like real-time W2s.
What inspired the start of Pinwheel?
We first developed a consumer fintech app focused on improving pre-tax benefits (e.g. commuter, HSA/FSA, etc.) to solve for the fact that most employees were not fully utilizing their benefits because providers forced employees to use a separate debit card. The app allowed employees to connect existing credit cards and would automatically detect pre-tax eligible charges and ensure the tax savings were still added to their next paycheck. In the process of building that product, we realized that there was no easy way to connect to payroll systems and we were spending the bulk of engineering time building integrations into payroll providers. After talking to a number of other fintech companies, it became clear that this was a problem that many others were facing. This was our aha moment which led to the creation of what Pinwheel is today.
How is Pinwheel different?
Pinwheel is the highest performing and most reliable payroll API with the best conversion rates. Trusted by some of the biggest names in fintech like Square Cash App and three of the top five neobanks, Pinwheel offers superior performance, reliability and security. Pinwheel has a long term vision to promote a fairer financial system by providing the missing link that exists in the ecosystem today: employment information.
What market does Pinwheel target and how big is it?
While Pinwheel can serve a broad range of fintech businesses, the neobank industry alone is predicted to be worth $722B by 2028 according to Grand View Research. Meanwhile, the consumer lending startups are expected to grow to a $390B industry by 2023. Pinwheel will serve both of these booming fintech sectors as well as other businesses, demonstrating the massive potential within the market.
What’s your business model?
Our customers can integrate Pinwheel into their app with just a few lines of code and utilize our pay-as-you-go model (we only charge for each API call).
How has COVID-19 impacted the business?
The pandemic has triggered an acceleration in the adoption of digital banks and financial services among consumers, which meant greater demand for the product. It also underscored the need for a fairer financial system where consumers don’t get left behind, which supports the overall mission of Pinwheel.
To put it into more tangible terms: during the last quarter of the pandemic, Pinwheel revenue has grown by 11x and we are on track to process over half of all direct deposit switches for the entire neobank market.
What was the funding process like?
We wanted to run a tight and fast process so we could get back to building ASAP. To that end, we only spoke to a few partners we had already built relationships with and ended up closing everything in a matter of weeks.
What are the biggest challenges that you faced while raising capital?
Keeping our process tight.
What factors about your business led your investors to write the check?
1) Our position as the market leader in the space, 2) what we’ve accomplished since our last fundraise (11x in revenue, signing some of the biggest customers in the space, building a world-class team of 40 people) and 3) the quality of the best-in-market team we have onboard.
What are the milestones you plan to achieve in the next six months?
Our focus is to ensure that we continue to deliver as much value and delight as we can to both existing customers as well as to new ones. That means 1) continuing to invest in growing our best-in-class coverage of payroll platforms, 2) improving our market-leading conversion rates, and 3) scaling our incredible team on both the technical and commercial side. This new funding will allow us to do exactly that and reinforce our position as the leader in payroll connectivity, trusted by the biggest neobanks and fintech companies that consumers know and love.
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
Capital is simply a means to an end. The best teams I’ve seen do with $1 what lesser teams can only manage to do with $10. There’s always a scrappier, leaner way to get the job done and capital efficiency is the hallmark trait of world-class companies like Amazon and DoorDash. Don’t let lack of capital be the excuse for why you weren’t able to get something done–where there’s a will, there’s always a way!
Capital is simply a means to an end. The best teams I’ve seen do with $1 what lesser teams can only manage to do with $10. There’s always a scrappier, leaner way to get the job done and capital efficiency is the hallmark trait of world-class companies like Amazon and DoorDash. Don’t let lack of capital be the excuse for why you weren’t able to get something done–where there’s a will, there’s always a way!
Where do you see the company going now over the near term?
We plan to grow the team extensively over the rest of 2021 both on the technical side, so that we can continue to grow our best-in-class coverage of payroll providers and improve our market-leading conversion rates, and also on the commercial side so that we can serve more businesses and keep up with demand. We’re hiring across all teams both in New York – where we’re headquartered – and also for remote roles.
What’s your favorite outdoor dining restaurant in NYC
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