Pinwheel is the API platform for income verification that every fintech and neobank needs

A lot of founders start building one idea and in the process, find another one that is more alluring. Perhaps the most well-known example is Tiny Speck, a game publisher of a relatively uninteresting MMORPG where the founders grew sufficiently frustrated with their internal team communications tools that they migrated from game building to designing a chatting app known as Slack.

That’s the story of Pinwheel and its founders Kurt Lin, Anish Basu, and Curtis Lee. Lee, who formerly founded Luxe, a valet service that sold to Volvo in 2017, had hired Lin as the company’s GM. After two years of “innovating” within the confines of a massive automobile manufacturer, the two were ready to spin out and head back to the open world of startups. Meanwhile, Lee and Basu had worked together previously at social gaming company Zynga on Mafia Wars, and connected the whole group together for a new project.

The big question was what to build. They started by developing a software platform for companies to easily offer their employees pre-tax benefits like expensing transit passes and funding health savings accounts. They hit a programming wall though: there was no easy way to connect their product to the myriad of payroll providers out there.

“We had built an internal platform with integrations into payroll systems … and what we realized as we were building was that there was kind of no solution out there that both aggregated and unlocked access in payroll systems largely because they’re very old and kind of closed systems,” Lin said. As they talked with other fintech founders about how to solve the roadblock, they realized that the lack of an API that they could use for their product was actually a potential product in and of itself.

And so came the idea for Pinwheel, an API layer for payroll data that handles everything from income and employee verification to easily switching and managing direct deposit. The company officially came out of stealth today and announced that it has raised a $7 million seed round from Josh Kopelman at First Round Capital and Greg Bettinelli at Upfront Ventures, who will both join the company’s board.

Like any API platform, there are a range of users and data that they want to connect to. For consumers, the main draw is automated direct deposit control, which will allow consumers to control where their paychecks go. For instance, if they want to split a direct deposit into multiple accounts, or regularly move part of their paycheck into a savings app like Digit or Acorns, Pinwheel can help them do that easily.

But the real interesting use cases start coming with other fintech business users of the platform. Take mortgages for instance. The process to apply for a mortgage is arduous, requiring numerous documents to prove income and employment status. Some of that is now digital — you can use tools like Notarize to digitally sign documents — but few options exist to directly pull payroll data into a unified, machine-readable format for all use cases. “Even in 2020 right now, most people still have to submit a paper pay stub or tax document every time they need to substantiate [their] data,” Lin said. Pinwheel wants to be the layer to power all of this data flow.

Kopelman of First Round says that it is precisely financial applications like mortgages and lending that attracted him to the company. “You take what would happen in four weeks and [Pinwheel] turns it into four minutes,” he said.

He first learned about the company during a board meeting of one of his portfolio companies and was intrigued. As he dug in, he liked that the founders “were extremely focused on the users” and he liked the focus on payroll. “It’s the source of truth and the source of funding,” he said. He noted that First Round has invested in a variety of future of work companies like Uber and TaskRabbit, and saw firsthand the need for better options for accessing payroll data easily and securely.

According to Pinwheel, 82% of Americans get paid via direct deposit — which means that the vast majority of income data is sitting in payroll systems.

Pinwheel is not a replacement for incumbent payroll providers like ADP or upstart companies like Gusto. Instead, it layers on top of them, much in the way that, say, Plaid is a layer on top of existing banks to provide other fintech companies secure access to a user’s banking data.

With Luxe, Lin and Lee formerly built an on-demand valet service, and I was curious what they learned from that experience and how that affected their approach to Pinwheel. Lee said that the big difference was understanding what works and what doesn’t when it comes to building valuable companies. “Certain businesses are just conducive to better outcomes versus others,” he said. He noted that compared to an on-demand business like Luxe, Pinwheel’s API play was not as capital intensive, had limited marginal costs, and it’s a pure technology play, making it easier to create value for the startup.

One other change: the team moved from San Francisco where Luxe was headquartered to New York City, where Pinwheel is based.

In the company’s current roster, Lin serves as CEO, Basu as CTO, and Lee is executive chairman. Lee is also a venture partner at NYC-based Primary Venture Partners.

In addition to First Round and Upfront, Wonder Ventures participated as did angels such as Adam Nash, the former CEO of personal finance manager Wealthfront and Mike Vaughan, former COO of payment app Venmo.

https://ift.tt/eA8V8J Pinwheel is the API platform for income verification that every fintech and neobank needs https://ift.tt/2Ypu1xm