Aaron Marsh
Hello and welcome to The Buzz, a Bank Automation News podcast. I’m Associate Editor Aaron Marsh, and I recently spoke with Lindsay Davis, head of markets at Atomic, a Salt Lake City, Utah-based provider of application programming interface payroll integration that was founded in 2019 and whose direct deposits payroll offering now covers around 75% of the U.S. workforce. Atomic has teamed up with Chicago-based financial services platform Klover, which was also founded in 2019, and San Francisco-based startup Column Tax, a provider of personal income tax software that recently raised $5.1 million in seed funding. The three fintechs have now launched Tax Refund Unlock, which is designed to simplify and automate consumer access to their tax refunds on an ongoing, incremental basis. This is what I heard. The new offering, is this going out to Klover users?Lindsay Davis
Klover is our first customer that’s live using this; Withhold is the Atomic side of it. But the Payroll Unlock program that Column Tax is first launching is with Klover, and Klover is an existing Atomic customer. So we already helped them access payroll accounts to do verification of income and verification of employment, because they do income smoothing in between paychecks. So they go into the payroll system to say, is this user employed? Do they have a paycheck coming? Are they hourly or are they gig? They get a little bit more intelligence on how their consumer needs access to finances, and then within Payroll Unlock, this is a thing that’s sort of mission aligned for all three of us. Like for Klover, it’s giving the ability for their consumers to put more money in their pockets in a scenario where they might otherwise go to a payday loan or accidentally overdraft their bank account. And for us, it’s just a form of unlocking the paycheck because we that’s our central thesis, we’re building this because we think there’s a lot of applications in these cases. And this is just one of them. Payroll connectivity generally just sort of unlocks the power of the paycheck, that’s sort of our mantra.

The Column Tax side of the of the product is called Tax Refund Unlock. So they’re using Atomic’s payroll connectivity to enable the ability for a user to go into their payroll account and update the W-4. What Column Tax brings to the table is the tax logic. So they’ve simplified the form which is otherwise like a bunch of different fields. You fill it out in the beginning of your employment, or you might update it periodically as the IRS updates the forms. Last update was December of last year. A lot of consumers might have had their tax filing status changed in recent years, that’s a quick win. If you were single previously and now you’re married, you get a tax benefit there the logic that Column Tax brings to the tables then says hey, you qualify for X amount of dollars, potentially, if you want to update your W-4, then they come through Atomic to connect to the payroll system by identifying their payroll provider or their employer.

Aaron Marsh
How are you then taking that information and determining whether there should be access to more funds through their paychecks?

Lindsay Davis
Column Tax is the ultimate tax logic provider. So they take their user, the user from their end customer. So Klover in this scenario, for the purposes of our go-live, they take their user through a simple questionnaire, it’s about four or five questions about your tax filing status, basic windfalls that most consumers don’t know that they’re eligible for and they’re otherwise withholding additional funds. So in advance of a refund, we can update the W-4 and we can unlock some of the liquidity that is in the tax refund.I think the use case for us in the beginning is really making sure that consumers who need access to this kind of liquidity in between pay periods. We might not be the target demographic for something like this. And we might not think to go update our withholdings because we don’t want to owe. 75% of Americans actually get a refund — to the tune of like $350 billion or potentially higher, as of recent tax years with the new child tax credit. So for the consumers that are most vulnerable in this country, people that rely on payday loans, people that go accidentally overdraft their bank accounts, people that are flocking to neobanks for these very easy use cases, this is another way of accessing liquidity that’s kind of otherwise theirs. It just sits in an interest-free loan in taxes until they get their refund that one time a year.

It is an experiment. To my knowledge, at least the way that we’re doing it together is sort of the first this has been done. I think other companies have tried to do this by advancing consumers their refund, by sort of making estimations, like hey, you’re probably going to get like $2,000 to $3,000, which is the average of what a consumer gets. It might give them $1,000 in advance of that. But they’ll have to hold that money on their balance sheet until they get the refund back and ensure that they get feedback, versus this, which is like we’re unlocking money that’s otherwise that consumer’s. You can also put it back to the consumer, so like if I rely on that $3,000 paycheck annually. That’s the largest windfall for most Americans. You could go back into the system and put in a little extra money to offset that differential.

Aaron Marsh
Where do you see the target audience of this? Where does that fall?

Lindsay Davis
Ultimately the focus is on the most vulnerable members of society financially, people that end up in situations where they rely on payday loans where they end up going to, you know, accidentally overdraft. The big bulge bracket banks made about $4 billion last year and overdrafts, even considering the backdrop of the pandemic. There’s still a big problem here. And I think small pockets of unlocking liquidity without charging interest or without charging additional money to a consumer that is, again, otherwise there’s is where we’re mostly focused. And it’s a larger demographic than most of us realize.I think the wealth divide has gotten larger in this period of time. Maybe some of us had done better because we had gotten better jobs, or we made better income because the employee market was great for us. But on the back end of that, people that are working like hourly jobs, they were severely hit, and a lot of bills are about to come due. And a lot of the programs that were put in place like rent forgiveness, student debt forgiveness, when those programs expire, there’s going to be a hit and we’re going to see it, and the people that are going to be hardest hit were those that didn’t fare well on this.

Aaron Marsh
You’ve been listening to The Buzz, a Bank Automation News podcast. Thanks for your time and be sure to visit us at finainews.com for more automation news in financial services. Please don’t hesitate to rate this podcast on your podcast platform of choice.