PeakSpan’s Thesis for Tapcheck: Series A Extension

We are thrilled to announce that PeakSpan has led a significant follow-on investment in Tapcheck!

Via this extension, PeakSpan is effectively “doubling down” on our investment after three years of building together since the original Series A. Since then, the company has pulled off the “reverse-Luka” (moving from LA  Dallas), opened a new office, welcomed in several awesome management team members, launched ample game-changing products, expanded its market size, closed on a new credit facility and have gown revenues by 30x! We couldn’t be prouder to call ourselves partners to Ron, Kayling and the entire Tapcheck team and couldn’t be more thankful to management for their tireless efforts in growing the business to “peak 1” (as we like to say at PeakSpan). Lastly, a special shoutout to the seasoned and helpful sets of hands (Andre Martin and Carl Tsukahara) who have upleveled the business across marketing and people operations. And we’re just getting started.

What does Tapcheck do? Tapcheck operates in the earned wage access space or “EWA” for short. In its modern form, earned wage access was born in the early 2010s but in the past five years, has seen massive acceleration. There are two primary flavors of earned wage access: (i) “employer-sponsored” (“B2B”) and ii) direct-to-consumer (“D2C”). Within these categories there are also several different mechanisms for facilitating earned wage access but the fundamental difference (between B2B and D2C) rests on the fact that the employer-sponsored/B2B providers integrate with the payroll and timeclock systems, relying on real-time data feeds to gain comfort in extending wages to the employee earlier. Conversely, D2C players do not have access to this data, and thus rely more on underwriting models to deem creditworthiness of the consumer (or, in some cases, will offer wages 1–2 days early when the paycheck pre-processing data shows up at the bank. In the former instance, loss rates are much higher.

Why is EWA so Attractive?

1. It’s Becoming Table stakes: 83% of workers aged 18–44 believe they should have access to earned wages at the end of each day or shift
2. Reduction in Financial Stress: A study by the Financial Health Network found that 83% of employees using EWA reported reduced financial stress, which has been a key driver for employers to adopt these programs
3. Increased Productivity: Employers offering EWA services have reported a 15–20% increase in employee productivity, as financial stress is alleviated, and employees can focus better on their work
4. Engagement/Satisfaction: Companies providing EWA reported an 11% increase in shift uptake among employees, suggesting enhanced workforce engagement
5. Boosts to Recruitment and Retention: Organizations offering EWA as a benefit experienced a 27% faster recruitment rate and a 16% reduction in turnover

Why we invested, Again!

1. The market is massive. In the US, nearly three-quarters of workers on non-farm payrolls are paid every two weeks or monthly. Further, nearly a quarter of the 137 million households in the US live paycheck to paycheck.

2. The space is growing rapidly. Shown below are figures related to employee-sponsored EWA transactions only. # of transactions and EWA $ volume grew nearly 100% in 2022. Taking into account all models (not just employee sponsored), 7 million unique workers accessed $22 billion of wages early in 2022, with no signs of slowing down.

3. Penetration is still low. Taking the 7 million worker stat cited by the consumer financial protection bureau (“CFPB”), this is just a fraction of the 120 million workers that get paid weekly or bi-weekly or the 80 million workers that get paid hourly. Meaning, the space is still not even 9% penetrated. I’m sure DailyPay will have some awesome market analysis in their S-1 later this year (IPO is rumored).

4. Profitable unit economic model. Tapcheck operates with 70–80% gross margins which is best in class for both FinTech and SaaS models. Costs include hosting, transaction processing, debt related expenses and headcount costs associated with onboarding.

5. Low charge offs. Employer-sponsored charge off rates remain steady at 0.3% versus direct-to-consumer charge off rates at 6.3%. This is due to the direct integrations across both timeclock and payroll systems, avoiding the necessity to make a determination around creditworthiness.

6. Efficient B2B2C distribution. The B2B EWA space trades at a healthy premium to the B2B space given the underlying unit economic efficiency. While the end user (the employee/consumer) is the same at the end of the day, the path with which B2B providers sell to consumers is through their employer and thus more efficient given the product is more trusted, the audience is captive employers can communicate programs to employees anytime), they are not asking a third party to float the wages, but rather — it “feels like” the employer itself is offering wages early (even if it is offered by Tapcheck on the backend).

7. Freemium B2B. Relating to the B2B2C magic, the business buyer receives the solution for free and given EWA is the #1 benefit for hourly wage workers, it’s a no brainer decision for the employer. Candidly every employer of wage workers should be offering wages early (helps with stickiness, employee satisfaction, and even recruiting).

8. Sticky Cohort Dynamics. Once a B2B customer is acquired and the account is launched with an initial set of users — Tapcheck works with the customer to build awareness around the Tapcheck offering. This awareness building + strong product in general support healthy cohort expansion which drives up NRR and LTV:CAC. Even if employees leave, they are often quickly replaced which creates new usage opportunities.

9. New Administration. As a FinTech, Tapcheck is subject to state-by-state regulation, sometimes relating to lending laws but increasingly — states are creating purpose-built regulation for EWA products given they operate quite differently from a loan. At the federal level, there is less direct influence but under the new administration, there have been attempts to reduce or eliminate the CFPB which can influence how certain states treat EWA. While previously the CFPB was considered a potential headwind. Today, the headwind has died down.

10. Resilient Value Proposition. Tapcheck does not have an AI opportunity or a patent and is not defining its own category. However, when we sit back and think about product market fit, I can’t name another company in our portfolio with stronger product market fit given, at the end of the day, Tapcheck is selling money (access to money early). That is hard to compete with relative to pure software sales. Beyond this, the magic of Tapcheck boils down to execution…more on Tapcheck’s moats below.

What makes Tapcheck Special in this Market. Three Pillars

1. Product — we have the strongest product in market evidenced by our registration, adoption and usage rates. We also have the most accurate product in market. Many of our competitors make errors such as overpaying or underpaying employees. These mistakes are costly and cumbersome for the employer to rectify (typical via a manual payment via check by mail). Plus this becomes a poor experience for the employee. Tapcheck rarely makes mistakes

2. Post-Sale Go-Live — further, Tapcheck is expert at integrations, onboarding, change management and ongoing awareness building / education. This is critical for a usage based revenue model where we can drive more volume programmatically post-sale

3. Team — Ron and Kayling are a special breed of entrepreneur. After successfully building a nine-figure construction business in southern California, they were able to self-fund the business prior to PeakSpan’s Series A. The thesis, the hunger, the thoughtfulness, the grit — they have it all and are joined by an A+ management team

Conclusion

We couldn’t be more thrilled to embark on this next chapter alongside Tapcheck. We have the team, the product and the market opportunity lined up perfectly. With continued execution — we see the sky as the limit for Tapcheck.