Note that "average" is misleading; as used by Even, it means "some amount we calculate by a secret-sauce algorithm that is not any usual definition of 'average'."

From the Even FAQ [0], under "How does Even calculate my average paycheck":

Even looks at how much you've earned and how much you've spent in the last 6 months. To be fully transparent, your Even pay isn't actually a mathematical average. When we use the word "average" we're using that word to make things easy to understand. Your Even pay is calculated using an algorithm that is more complicated than an average, because it does things like treating more recent paychecks as more important than paychecks you got 6 months ago.

(That they characterize this description as being "fully transparent", is further illustration of their creative use of words outside of their normal meanings.)

[0] https://even.me/faq

They are most certainly targeting people who are bad with money though. But then again, so do lotteries and designer jeans makers.

(The point I'm struggling with is how they do this without a) earning interest, and b) earning enough for themselves)

Even's algorithm is not comparable to actuararial predictions and it is not comparable to spread; both of the former are primarily useful to investors and executives, whereas Even's algorithm is primarily useful information for customers. It might be easier to infer Even's spread if you knew the algorithm, but the algorithm and Even's spread aren't one and the same.

Per your example, it's easier to infer a Big Mac's spread if you know they're using real meat or to infer a car's spread if you know the seats are real leather. But that doesn't give those companies a positive reason to not disclose the approximate contents of their meat patties or the material their luxury seats are made of.

You can't infer anything about the cost of a particular car by knowing the cost of the seats. If fact, it's quite possible that your "upgraded leather seats" cost less than their standard cloth equivalents. That's my entire point.

The algorithm is important, sure, but not to the end consumer. At least, not to enough end consumers. I'm sure their investors are well aware of the details, but they are under no obligation to make those details public. If fact, they could probably successfully argue that it is a trade secret.

Oh man, my car analogy isn't accurate ;-)

> Cars and Big Macs, like pretty much anything, are priced in no way according to their manufacturing or contents cost

This may be true for cars and big macs, but you know what I'm saying -- knowing the components contained in a product is different from knowing the spread on that product, even if knowing the comnponents tells you something about the spread^1.

In any case, this is all irrelevant to the central and irrefutable point -- that that the way the algorithm works is of immediate and obvious importance to the customer.

> but not to the end consumer.

Sorry, but the burden of proof here is on you. How is the algorithm not important to the end consumer? It's deciding how much money they get each week. How many things in life are less important?!

> but they are under no obligation to make those details public.

In fact, it'd be unsurprising to learn that they are.

--

footnote 1: BTW, I think you're unintentionally arguing against yourself.

In the event that knowing the components (i.e. the leather, the algorithm) tells you nothing about the spread -- as you maintain in your last comment -- you're basically conceding my point that there is a difference between knowledge of components (i.e., what you're getting) and knowledge of spread. In which case revealing the components can't possibly be justified on the basis that companies shouldn't have to reveal spread.

My argument was that even when components do tell you about spread, sometimes it's still necessary to say what those component are. And there are clearly examples of products where "what you get" does reveal spread (e.g., anything closely tied to commodities w/ very little or inexpensive manufacturing).

But as I said, this is all a bit of a tangent.

Seems like this is the million dollar question, regardless of what they think they are.

After all this though, I've got the following:

1. They seem to have a useful product that a good number of people could benefit from. A marginal step up from payday loans and credit cards.

2. They give off the appearance of transparency, but there is a lot there that doesn't add up. (In an other thread a founder seems to suggest that the bank retains all interest earnings on the "savings" accounts... that seems... off.) (Maybe that's how they skirt the regulations - don't collect any interest at all and receive some other form of payment... maybe a "bank partner fee" or something?)

I'm cautiously optimistic that I'm just a little internet jaded and these guys are all on the up and up.

I'm skeptical.

Even if the algorithm is designed solely for the benefit of customers, there's very clearly some value extraction going on. It seems to me that personal finance training is a much better product for these individuals...

> They give off the appearance of transparency, but there is a lot there that doesn't add up.

This seems like a substantial business risk, right? What's to stop another company from coming along that is totally transparent and also just barely out-performs Even on payouts?

Or even a non-profit that prices things to manage risk as opposed to make profit, probably undercutting Even in the process?

Even's only defense against either is "nuh-uh, we're better", and I have a hard time seeing them winning that fight without full disclosure.

McDonald's is selling a predictable burger experience, you don't need to know the spread for that.

Even is selling a predictable income experience...

EDIT: Regarding the argument in this subthread regarding interest rates, the common mistaken assumption seems to be around what constitutes the "principal" here.

In "steady state", there will be very little money flowing out of Even's coffers into the user's wallet. So the "average" amount loaned to the user is likely to be close to zero... or even negative (in case the user makes a bigger paycheck than usual). So the interest calculations only make sense on that amount. Not the entire amount of money that the user made. The actual "interest" payment in those cases could easily be in 100% + range or more for the average user.

What they seem to be doing though is taking all the "excess income" and "saving" it to their accounts, which they'll give you a portion of the interest they earn on.

They've obviously worked out the math that after a certain level, "topping up" your account can even be done within the interest earned.

> One last important note: The Even Cushion is not an investment account, and it does not earn interest.

[1] https://even.me/terms

(I ignored taxes/withholdings to make the math easier).

That's 1% for one week !! In comparison, current CD yields are close to 0% per annum

https://www.scc.virginia.gov/bfi/files/pay_guide.pdf

http://www.in.gov/dfi/2366.htm

For 1 week: 3 / 360 = 0.8%

For 52 weeks: (3 * 52) / (360 / 52) = 0.8%

Or is it that Even is holding on to effectively a weeks worth of pay at all times, and we're calculating interest based on $360 of principal? Or is compounding coming into play somewhere?

EDIT: This is almost the equivalent of paycheck insurance. Like most insurance companies, I imagine Even makes money off of float [1]. However, insurance companies are also great at modeling their customers' risk. I don't see how Even could accomplish that. It is a natural information asymmetry and I'm not sure how Even could have a better idea of a customer's future earning then the customer.

[1] - https://en.wikipedia.org/wiki/Float_(money_supply)

They're using a non-disclosed algorithm to calculate an "average" that's not really an average, and holding on to all the money above that, and charging you $3/week for the privilege. If they haven't already constructed the algorithm so that its nearly impossible for them to ever be giving you a "boost" other than from your own deferred wages that they are holding on to, I'd be surprised.

> However, the insurance companies are also great at modeling their customer's risk.

Insurance companies also have to disclose the terms and conditions, including, particularly, the specific events that qualify for a payout and the amount of the payout; Even does not disclose this.

> It is a natural information assymetry and I'm not sure how Even could have a better idea of a customer's future earning then the customer.

Because of the non-disclosed "average" algorithm, there's an additional -- and potentially more significant -- information asymmetry working in the opposite direction of the one you describe.

Also their about page is throwing red flags in regards to regulation. First off, it doesn't look like anyone involved has experience in either finance or the law. Secondly it says "We're not bankers. We're not a payday lender or a credit card company." That isn't up to Even, that is up to the law and this sounds a lot like those laws are being completely ignored.

Quite possibly, not like they'd be the first startup to do that as a core feature of their business model.

> They can't just charge interest, call it a proprietary average algorithm and avoid all the regulation regarding publishing interest rates and such.

Sure, but what they're actually doing is charging interest on loans, they are holding money from your paycheck as a deposit before you need the loan, using the undisclosed proprietary "average" algorithm. Then using the same algorithm to determine when you are due a "boost", and paying that boost to you out of your own deposits that have been kept from prior paychecks, only giving you an interest-free advance if their undisclosed algorithm says you are due a boost and you have exhausted the deposits previously held-back from your pay by the same algorithm.

The customer's superior knowledge of their likely future income situation can't be used to game the system without knowledge of the algorithm which sets the rules of the game.

It just rubs me the wrong way that too often these days disruption amounts to "I am going to go in to X line of business, ignore the law, and pocket all the money any competitor would have to pay to comply with regulations."

Disclosure is a big one when it comes to financial regulation. Something tells me there is an undisclosed source of income here beyond $150 membership fees.

If everything goes well for Even's customers, it's unlikely regulators will bother stepping in. But if everything doesn't go well, then Even is going to have a lot of pissed off customers and very few people in its corner. In a hypothetical Even case, regulators would get to cry "See! Look at all these examples of why we really need regulation!"

Furthermore, regulation arbitrage doesn't always work out, even when your customers love you (e.g., Aereo).

edit: also, unlike taxis, I assume avidly pro-consumer regulators already would love to squash payday loan companies but don't have the power to do so. Lumping yourself in as a "slightly better payday loan company" is like painting a target on your back. Seems like Even would want to distance themselves from that association as much as possible...

If they figure your "allowance" is $400, and you get paid $150 from your "final check" because you got fired, I'd imagine the max loan would be $250. Odds are after a few months you are already covering 75% of this anyway with the "savings" they are putting away.

I'm sure for what they eat they more than make up for in an algorithm that forces them to be in the black on each active account.

I'm speaking in absolutes, but of course it varies person to person, and I don't mean to suggest that I think there's no place for this sort of service, only that I think it seems expensive relative to the effort required to gain what is an extremely valuable skill. I think we can agree to disagree!

Even if that unsourced figure is correct, it doesn't really address the issue: if they aren't used to deal with "I was short because my pay was lower than normal this week", Even wouldn't help. That's its a predictable, recurring expense doesn't mean that its not a recurring pattern of timeshifting a mismatch between income and expense, rather than dealing with irregular income patterns.

Even (at best) deals with irregular income patterns, but nothing else.

I was there, I think everyone has probably been here.

I can't recommend http://youneedabudget.com enough. I don't work there, get kickbacks, or anything. They have turned my life around.

The key point as I understand it from reading:

- if I make more money than the average, i get the savings and Even does not make any money off of it

- if I make less money than the average, Even will give me an interest free loan that I don't have to pay back

Seems fairly easy for someone to game this system so they get more $$ than they pay in, how do you protect against that? Freelance works on Uber / Lyft / etc can set the amount of hours they work easily. And then stop using Even when they've earned more than they've paid in.

To be clear: I like the idea a lot, I'm just looking for more info about how it intends to stay operational.

For the model to make sense, they probably will discount what they think you're true average monthly wage is so that the savings rate averages out to positive.

"Money you save with Even is held in an FDIC insured account at one of our several partner banks."

No; need a bank account to use the service. (It also sounds from the Terms of Service -- which are oddly ambiguously worded -- like you may need to have online access to your account and share your credentials with Even.)

2. All "overages" go into an account they control. Sure it's yours, but they are pooling money from all users and investing it in the meantime. Bullshit they aren't making money off of it. It isn't sitting under their mattress, that's for sure.

3. They promise no interest either way, but the amount they "loan" people is more than covered off in interest earnings on the pooled "overages" from all users.

4. On top of all that, they charge $12 a month.

I think they've got the profit side down.

So they do that all for $12 a month?

For YOU. Not for them. They say it goes into an insured bank account. The moment you put any money into a bank account, it stands to reason it earns interest.

For what it's worth, Even doesn't make any money off your savings."

That isn't the same as saying they don't earn money off of these accounts. It just may not make them any profit, hence the $12.

Some of the largest insurance companies in the world "don't make money" off of premiums either, but they are multi-billion dollar organizations.

That seems either extremely generous, tremendously stupid, or frankly, a little shady.

You wouldn't happened to be owned in whole or in part by this same bank, would you? Do you receive other, unrelated back channel income from your partners in relation to Even?

(Sorry for being intrusive, but I'm trying to figure out why you would essentially throw away thousands of dollars a month in interest earnings).

Banks don't yield interest on savings, so we're not "allowing" the bank to retain anything. It's not like having money just magically procreates into more money. Banks pay interest on savings to their customers because their business model is "we get money in the form of savings, pay a little interest so people keep that money with us, and then we lend those savings to other people at higher interest. Boom, profit."

If we kept the interest yielded on savings held with Even, we would be taking money away from our customers, not from the banks. I think you might be vastly overestimating the amount of money you can make doing this, let alone the fact that it's a pretty dick thing to do.

The only way we make money is the subscription cost of using Even.

You're collecting, withholding and pooling money from users. This we know because I'm assuming your algorithm is not set to run at a loss, and when you "average" allowances you create overages by your own admission more often than not. That money is being placed in a bank account, which we also know because it's plastered all over your site.

That bank account will pay interest to the holder, because as you point out so nicely, that's exactly what banks do.

That "holder", by default, is Even. Unless of course you are setting up a bank account for each separate user, in which case the holder could be the user in trust. That seems silly though so let's just go with the fact that the money is yours and you simply redistribute it properly.

Either way, the money is given to the bank so that they can invest/use it. So either they are retaining the extra profit by not paying any interest to Even at all, which seems ridiculously stupid from your point of view, or you are in fact retaining the interest yourselves, which you aren't disclosing. If I were running this, I'd choose the latter because I like to make money. The issue I have is that you are either not aware this is happening or - more than likely - choosing to pretend that we are too stupid to understand this.

let alone the fact that it's a pretty dick thing to do.

It's not a dick thing to do at all unless you actively avoid disclosing it. You're not charging interest for loans so from the customer's point of view, it can be taken as a break even. Of course the SEC might have a different opinion on these matters than I do.

The only way we make money is the subscription cost of using Even

I have trouble understanding a business model that requires 833 customers with significant money under management to barely take in enough for a single salary. (833 * 12 == 10K) Assuming an average income of $3K per month for these users, you'd be managing upwards of $2.5MM every month! Retaining 10% of that 2.5 as "excess overage" you'd be looking at $250K in that pooled account. At 5% interest, you're either giving the bank a windfall of $12,500, or you are keeping it.

We can all do basic back of the napkin math here. There is something about what you are telling us that doesn't jive with presenting a position that you are going to be successful with income limited to $12 per month per user. You either have another source of income or you are in bad, bad shape. We're all assuming the former.

You are missing the third, and correct option: the bank is paying interest in aggregate, and we are redistributing that interest back to the individual. If I was lying about this, wouldn't I just not answer your question instead of providing written evidence of falsification?

Overall, you are assuming many things that are not correct.

Edit— one clarification worth making: currently the way we are storing money does not earn interest at all. But this will change in the near future, and when it does earn interest, we will redistribute as described above. If money you've saved with Even earns interest, you keep it.

So, YOU ARE earning interest on the savings. This is completely contrary to your earlier statement:

No, we do not earn interest on the savings.

Do you not see how someone in my shoes sees this as a little deceptive? You're middling in technicalities and details while ignoring that overall, the two descriptions create the same outcome.

we are redistributing that interest back to the individual.

Except it says the exact opposite on your website, quite clearly.

currently the way we are storing money does not earn interest at all. But this will change in the near future, and when it does earn interest, we will redistribute as described above. If money you've saved with Even earns interest, you keep it.

Just trust us.

I wish you luck going forward, but I think you are in for a world of hurt when the regulators come knocking.

However, it seems that without a critical mass of users it would struggle to finance itself.

You have to pass a credit check to get a credit card.

Nice, innovative, and actually useful. I wish them luck.

The more I look into it though, the less bullish I am on it.

There is a lot of black magic here that creates that "too good to be true" product. It's still a great idea and will likely have many fans, but this is a pretty capitalistic product.

And this sounds close to the argument that people make against the poor having smartphones, without realizing that there are lots of cheap smartphones out there, and generally this is their own connection to the internet, which is increasingly needed for everyday life.

Point is that it's not for us to say what a person does with their money. If the only benefit of this is that it gets a person through college or post college table hopping without a completely destroyed credit, perhaps it is worth the $150.

The assumption with a financial advisor is that there's value add; the advisor should either out-perform a standard investment mechanism, or know how to navigate bear markets, or preferably both. And also should definitely handle taxes and fees etc. without blow a bunch of my money or exposing me to risk/loss. In other words, they should know how to do something that I cannot reasonably learn how to do, or even if I learn could not do on my own without investing a huge amount of time/effort.

What Even provides is a service that someone with the ability to do a bit of personal financial planning is certainly able to do for themselves by taking :30 out of every Sunday afternoon, no knowledge of tax code or stock market finesse or weekly research projects required. It's certainly not a worthless service, but the recurring monthly fees seem on the high end of what I'd be willing to pay. For that reason, the lack of transparency about how exactly these amounts get determined (and where exactly the time value of my money is going) is extremely troubling to me.

This product seems like one way for "dependent contractors" to make a predictable wage. That's a real problem in that line of work.

Wouldn't it make more sense to try and get the employer's on board this program? It allows the employer to offer a more reliable compensation to the employee, and they can just pull the fee out of their salary anyway?

http://kielichlawfirm.com/fluctuating-work-week-flsa-calcula...