Why On-Demand Pay Can Become the Future Payroll Model

Welcome back to CFO Weekly, where we're talking with financial leaders about how to build efficiency in their teams, create time for strategy, and ultimately get results, with your host, Megan Weis. Let's jump right in.

Megan: Today, my guest is Scot Parnell. Scot is the chief financial officer at DailyPay. Since joining the DailyPay team, he has built a fortress balance sheet to ensure the safety and soundness of their offering. Scot spent over 20 years as a finance leader in organizations such as TIAA, Citigroup, and a Student Loan Corporation. He has a wealth of expertise and experience in leading businesses to achieve financial success.

Matched with his entrepreneurial spirit and enthusiasm, Scot has played a pivotal role in not only laying down the cultural foundation at DailyPay but also designing an efficient finance team. An effective communicator and change maker, he is known to drive visions from here to there. Scot is a CPA and has a BBA from the University of Texas at Austin and an MBA from Columbia Business School. During his free time, Scot enjoys time with his family hiking and cycling. Scot, thank you so much for being on the show today.

Scot: Thank you for having me. Very excited to talk to you and your listeners.

Megan: Yes. Today, we're going to be talking about your journey as a CFO, but also discussing a topic that's somewhat new to me and the market in general, I think, but seems to be gaining in popularity, which is on-demand pay. I'm excited to learn more about this topic, so let's get started.

Scot: Fantastic.

Megan: First of all, let's start with you. Let's take a look at your career journey and how it is that you got to where you are today.

Scot: Sure. I started working for Arthur Andersen a long, long time ago when it was one of the big eight public accounting firms. Very early in my career was attracted to the CFO and control response. I was energized by the blend of leadership, technical abilities, and opportunities to impact the company and the industries that the CFO operated in. Very early in my career, I got some great mentorship on how to build the skillset, the toolkit, to be able to be a successful CFO, and went ahead and pursued that.

Over the years, I picked up my MBA. I migrated from being more of a debits and credits accountant to being a broader finance professional. I focused my career in financial services, such as banking, brokerage, and insurance, and picked up a lot of skills along the way. The last thing I'd say is, throughout my career, I've been blessed with a lot of roles that allowed me the privilege of leading meaningful transformations for the organizations that I was working with. That's something that I really enjoyed doing. That's something that every time you do it, you get to learn, you get to contribute, you get to have an impact. I just find that very fulfilling.

Megan: Those transformations are very meaningful experiences. That's great that you've been able to have a few of those experiences along the way.

Scot: Absolutely.

Megan: I think it's great that you knew early that you wanted to be a CFO. I think a lot of people maybe just fall into the role eventually, but to know that you wanted to do that early on is awesome.

Scot: That was good. I followed that path for a really long time and ended up at some very large organizations. The last time I found myself looking for the next opportunity, I did some soul searching and decided that I wanted to focus on earlier-stage companies where you have much more ability to impact everything from the day to day to the strategy while there's always an element of the corporate and board-related activities. It's not the primary part. It's less specialized. You get to touch a lot more things in an early-stage company. I was looking for that, and that's how I found my way to DailyPay. It was an amazing with a great value proposition that had tremendous market opportunities and seemed like it had the wherewithal to deliver.

Megan: That's great. It sounds similar to my story. I worked for large organizations for a very long time and eventually came to the conclusion that I wanted something less specialized because those big organizations tend to pigeonhole people. Let's talk a little bit about DailyPay and what it is that they do.

Scot: Absolutely. DailyPay, we are a hyper-growth technology company that provides benefits to employees and their employers. We're most known for our gold standard on-demand pay solution, where we integrate with companies' time and attendance systems, the payroll systems, the HRIS systems in order to improve financial health of employees. Let me double-click on that. I'll give you an example. If you worked at one of our partners, say Target or Torchy's Tacos--

Megan: I just had Torchy's Tacos last night for dinner.

Scot: Love Torchy's Tacos. Love Target. We love all of our partners. We integrate with each of these companies. Because the integration with the company systems, say you worked a shift, in a very short amount of time after your shift, you can go on an app and see your pay balance. By pay balance, I mean the amount of money you'll make on the next payday for the hours you've already worked in this pay period. It's like going into the ATM and saying, how much money do I have in my savings account? Within a short amount of time after that shift, you can look at it.

Now, many people just use this feature to plan better. Perhaps they take on an extra shift or manage their spending and saving differently. If people need access to their pay balance before payday, we give them access to their money for $2.99. We'll move cash to their debit card within 30 seconds. Or if they have a little bit more time, we can do it overnight for [unintelligible 00:07:04] 99 or even for free. You can imagine having access to money that they've already earned, how that changes the game when they've got bills to pay and want to avoid late feess, or they need to deal with a medical bill so they can get to work or whatever.

We find, on average, we save the employees themselves that use our product over $1,100 of hard money over grass, late fees, and such per year. This is a demographic that really needs that $1,100 each year. Because we're helping solve those problems, everything from planning to access to their own money, those employees on average stay 40% longer with their employers. They have lower absenteeism, they are more engaged at work.

You can imagine if you're the CFO of a company that offers DailyPay, do you appreciate this? Because the companies typically do not pay us anything for at least the on-demand pay product that we offer. All they have is an integration, administration, a little bit of additional work that they have to do to help us integrate into their systems. Once we're set up, it's a pretty light touch, no change management. The employee wins, lower cost, less stress. The employer wins because they have lower turnover and more engaged staff and we win because we've got an amazing, product-market fit that could help. We see it over 49 million employees here in the US alone.

Megan: That's amazing. On-demand pay is truly something I just heard of this year. How long has that been around for?

Scot: There have been different versions of it for some time, but our gold standard product has been out since 2018. It's still relatively new. Then ever since I joined late 2019, we've gone from where we're primarily evangelizing, explaining what is on-demand pay to now over 37% of the market is aware of it or is looking for a solution so they can be more competitive at attracting and retaining great talent. We've turned the corner and now it's about scaling up to meet all that growing demand.

Megan: Who is your ideal client?

Scot: We want to help everybody out there. Right now, our model fits clients that have 400 or more employees just because of the integration on the front end and the dependencies that there being good processes around payroll and data management.

Megan: What if a company already outsources payroll? Let's say like an ADP, do you integrate with that provider or how does that work?

Scot: That's a great question. That's one of the things DailyPay-- It's one of our secret sauces. Our technology is so versatile that we integrate with ADP. We integrate with Paylocity. We integrate with all of the payroll providers out there. I think we have over 180 different integration configurations that we're currently supporting and we're adding new ones every day. Again, that spans from the more market-dominant ADP to more industry-specific providers to homegrown systems. Some of the largest companies have homegrown accounting systems and payroll systems. We integrate with those as well.

Megan: As you look back on your time with DailyPay, what are your proudest achievements since joining that company?

Scot: Well, first I'd say the enterprise success has got to be number one. Seeing DailyPay help so many is very rewarding. Right now, we're helping over 2.6 million employees have access to our platform. Seeing that grow as we invest in new ways to help our partners and their employees is very rewarding and one of the key reasons I came to DailyPay. The second is really building a fortress balance sheet, helping fund over $500 million to financing between debt, equity, and warehouse financing so we can deliver our promises that we've made to our partners and investors.

Third is driving the P&L. That's what I call helping the organization prioritize and balance the investments. You got to think about all the waves that we had to go through the past couple of years between COVID and the various different uncertainties in the capital markets and such. Helping the company through the exogenous activities as well as the hypergrowth and as we evolve as a company internally.

Then the last thing I'd say is helping DailyPay build what I call financial engines and breaks. Just building an awesome finance and admin team really go under me as well and making sure that we're implementing the right enterprise risk management and the right tone at the top so we're able to help the company think and execute and control.

Megan: Those are some amazing achievements.

Scot: It's been a great team effort.

Megan: Yes, I'm sure it has been. Just out of curiosity, are you guys public? Are you a public company?

Scot: No, we've finished our series D round in May of this last year. We're not public, but like all rapid-growth companies that have a constant need for capital, what we do want to create as much optionality for our board as it relates to how they might fund the balance sheet, and as such, we are putting in your typical controls that would give them the maximum opportunity to source different fundings.

Megan: What, if any, are the downsides of on-demand pay?

Scot: What are the downsides of on-demand pay?

Megan: I don't know if there are any, but I'm just curious.

Scot: We see it as there are not many downsides. Again, we see the benefits as all positive. I think where some people are concerned are, you're giving people access to money, and do they spend it before they get payday? I think there's that concern. We have a lot of data that says people use our product very smartly. A lot of people, again, just use the product to know they don't even draw on their money. They're just using it to do better planning.

I would also say that there are some less compliant solutions out there in the marketplace under the guise of on-demand pay. We've put every effort in to make sure that we're super compliant. We're putting together very secure setup solutions that have high reliability and amazing information security. I think what we're trying to do is make sure that the rest of the industry is holding up the same standards that we are.

Megan: Does it complicate taxes or anything, or no, not really?

Scot: It doesn't the way we do it. We've engineered our product to make sure that we're very compliant with regard to tax, labor, money transfer, and other forms of oversight. No, it doesn't really complicate taxes the way we do it. However, it can, if you look at some of our competitors market.

Megan: You touched on this a bit, but prior to joining DailyPay, you worked for a long time at large enterprise organizations. Talk to us about the transition of moving from that mature company to an earlier stage growth company.

Scot: I have to say I really valued all my time at some amazing large organizations. It's been great cutting my teeth at Citi. Citi helped me find my voice as a leader and go from-- I was a very good optimizer to, how do you go from being someone that can provide a solution to how do you go to become someone who can lead large groups of people with different interests and priorities through large scale change? I learned that at Citi and appreciate every day that I had there. I valued my time at MetLife. I've appreciated my time at TIAA, and again, very proud of those accomplishments.

As I mentioned before, I really wanted to have a more hands-on experience for my next opportunity. I was looking forward to taking my skills that I learned at the big company to earlier-stage company. Thankful for all I learned in transformation. Coming in and having those transformation skills, that is supercritical. If you have only done the job of repeating what your predecessor did with modest improvements or even large improvements but within a limited number of changes, that would not prepare you well for an early-stage hypergrowth company. Having that transformation background is super helpful and definitely get yourself experience in doing that if you want to be successful in early-stage.

Coming to DailyPay, that's helped me sharpen a few skills. First is prioritization. It's one thing to know what you want to look like in three years. It's something completely different to know which things you absolutely have to do today versus which things can wait a year and a half. Constant prioritization is a must. It's not just because you might be limited in cash. You might be limited in management focus or resources. That prioritization skill got super sharpened over the last few years since I've been here.

The second thing is, when you're in a hypergrowth mode, you have to balance your investments as a company every day. You have to make sure that you're investing in your distribution at just the right pace for the growth that you need while you're finding just the right pace of investment, hardening your systems, or scaling your backend. That has been a key focus. That'll force you to really understand how your product works and what the needs of your customers are. Constant balancing of investment.

The third thing is, as an early-stage company, that isn't yet profitable and one that has a heavy balance sheet focus, constant funding. I'm always talking to potential investors, be it equity, be it warehouse financing, be it debt. We already know today what my next four financings must be, and we've got a map for it. We're covering the market and making sure that we know what they're looking for. We know who's looking for what, and figuring out who the best partners are to help us get to where we need to be.

Now, lastly, and this was the biggest surprise for me. It shouldn't have been, but it was. The talent pools for people that fit early growth companies, it's different than the talent pools that I was successful tapping into at larger companies. Earlier stage, the comp structure is different. People get less cash. They more often take more into the equity side, and that doesn't fit everybody. Also, some people do really well with less definition of boundaries between what everyone does. Some people like more of that. Finding people that have the right fit for earlier stage companies and that have more pioneering spirit, that was a bigger difference than what I was expecting coming here. Now, I've been successful here, and I'm very proud of the team, but had to go a completely different way of staffing up my team to find the right people.

Megan: That's very interesting, and something that I probably would not have guessed myself. As the CFO of a company that's just starting up, how do you balance that startup mentality, which is more about risk-taking, with controls and having to put controls into place?

Scot: I love that question too. I've spent a good part of my career focused on the control and risk management aspects, just based on the companies that I grew up in. For instance, I helped a subsidiary of Citi put together a Sarbanes-Oxley compliance program before the ink was dry on Sarbanes-Oxley way back when. I've also built out different economic capital regimes and other things.

Here at DailyPay, what we did was we let urgency define where we focused first. We had three things that could get us in really quick trouble. Thing one was credit. We're exposed to whether a company can make their payroll. If we give access for a company's employees to their payroll, I need to make sure I get the money back. We stood up a credit committee that helps us monitor that big risk and actually filter which companies will underwrite.

The second thing that could be existential for DailyPay was information security. We had to be above the standard to make sure that we're protecting our partner's data, their employee's data, and everybody's money. If we weren't serious and weren't ahead of the game on InfoSec, that would've been company-ending. We had a committee on InfoSec.

The third place we started from a control standpoint was operation risk. We have a very elegant solution that we provide, but it has a lot of moving parts. Making sure that we have good risk management around keeping all of the things working at the right pace and all the handoffs working, that was super important, especially as we were starting. Having people get around and talk about what could break and why, what could go wrong and why, super important. We stood up that.

Then lastly, I mentioned the financing earlier. Every dollar is so dear at an early-stage company that we had to put pretty rigorous controls around monitoring our dollars, both in and out, making sure that we know how our revenue is doing on an almost minute by minute basis and making sure that someone very senior was making the decision on whether we could spend our precious dollars. I think those four things were existential for DailyPay. Every company has to figure out what their core four things are.

Now, as we have had more resources, both human and financial, we have built a more thoughtful, end-to-end enterprise risk management capability. We didn't want to have a bunch of different risk management systems and have redundancy. We wanted to make sure that we are very rational and effective as well as efficient at managing our risk. Not just risk avoidance, but making sure that we are making commercial risk management decisions. We're still in the process of fine-tuning an enterprise risk management culture that helps us manage all the different threads of risks that you'd want to in a company like this and prioritize and even identify market opportunities through doing so.

Megan: Oh, well, it sounds like you guys are doing a great job of that. I know sometimes accounting, finance can be viewed as the cops of the organization or the people that always say no, but it sounds like you guys have a nice balance between control and that startup mentality.

Scot: I think that's right. I can double-click on that a little bit. It is our job to say no, but it's also our job to state the conditions to how we can say yes and help the business get there. I hold my team up to that standard.

Megan: That is very important to say no, but if you do say no, have a reason or an alternative in mind.

Scot: Especially the alternative, how do we accomplish what you want to accomplish without putting the company at too much risk?

Megan: DailyPay is obviously making a lot of people's lives easier, but are there any tools or technologies that you're personally using right now that are helping to make your team's life or your life easier at the moment?

Scot: We have I think gone through a very common maturity evolution of our tools. I think a lot of companies go through something similar where you start on a great tool like QuickBooks but quickly outgrow it and then have to upgrade to, I don't want to give too much advertisement for people, but other ledger. Over the past couple of years, we've upgraded our ledger to a more common early-growth company-type ledger. We've upgraded our planning system and are using an integrated lateral planning tool that I think is amazing.

We have implemented, some SaaS-based tools or everything from reporting to how we do publishing of our dashboards to how we are doing. There are just so many tools that we put in. The monthly close automation is another one. There has been a big focus on that, making sure that we're being both efficient as well as effective.

Megan: Technology, it's amazing. It's come such a long way in the last 20 years.

Scot: I started when laptops were almost unheard of.

Megan: I started not long after that.

Scot: Definitely a lot of advancement, even in the last couple of years. I've probably rolled out five different planning systems over the years, and each generation of tool gets more intuitive. It becomes easier to distribute accountability and help create many finance partners out of all of the P&L owners in the company. That's been a lot of fun to see evolve.

Megan: What advice do you have for CFOs who are looking to drive strategic value to grow revenue and margin?

Scot: I think about this a lot. It's a very humbling question because you're your listeners, I'm sure even in my many years, I don't have a lot of things in my playbook that aren't in everybody's playbook, but what I can say is-- I can share how I look at it, the approaches I use, it really does matter what the strategy is. When I was in crisis management and trying to save a company whose market was falling out from under it, there the focus was, let's create a Pareto diagram of every customer, what the profitability is, but let's look at every driver of performance and profitability. Let's look at adjacencies to see where we might have an opportunity and, how do we save as many jobs and market value as possible?

That's very different than what we've been dealing with here at DailyPay where the market's growing at 100% to 200% every six months. What we do is build, validate, refine, break, and then rebuild the models as we test each driver and learn what ones are really working. Second, how do we build infrastructure to measure those drivers and keep deep-diving into the surprises? Thirdly, we partner passionately with the P&L leaders of the company and the customer focusing, focused individuals in the company. There are so many insights. Any piece of friction, we pay attention to because it's either an efficiency opportunity, a market opportunity, or both.

Additionally, I try to have as many relationships with customers, with CFOs at companies that we support because there's a treasure trove of opportunities. We also pay attention to what the customers are telling us from behind the scenes.

The next thing we also do is we just challenge people. We bring them in the room and say, hey, we got to get to a certain place. How do we do that? I can go on and on. I'm guessing I'm not telling any secrets, the real question is, how do you get the whole company working on these things together? That's what I really enjoy doing, is leading that charge.

Megan: Empowering people. I think people, they respond well to that and enjoy the opportunity to feel like they're giving value to the companies they work for.

Scot: That's a great point. How do you tap into that? If you can, you have a much higher degree of success.

Megan: Lastly, as a CFO, what is keeping you up at night right now?

Scot: It's planning season. I'm going through the whole process right now of thinking through where we put our next dollar and where I harvest my next dollar and where I'm going to find that next dollar. A lot of my energy is going into making sure that we're creating that baseline multi-year plan that everyone's calibrated to. In two weeks, when the world changes, we can all change together.

I think the second thing is, I'm still every day focusing on building my team. There's one or two roles that we need to drop in to deliver what we've promised to deliver in the next year. Right now, while we've been incredibly successful blending great talent, it's a very competitive market, especially for certain skills like attacks and controller and such. We're energized in finding the right diverse set of people to help our team deliver next year.

I think the third thing I've mentioned, we're always in the market looking at our next financing or building relationships we might need for the next two or three financings. We're spending a lot of our time making sure that we've charted a good course there and that the relationships will be there when we need it.

Megan: Finding talent these days is definitely not easy. I think it's as competitive as I've ever seen it. For the last 10 to 15 years, the accounting profession has been struggling with talents. Yes.

Scot: I'm trying to talk my daughter into becoming an accountant [inaudible 00:32:07]

Megan: It is a great career path. So many options.

Scot: Yes.

Megan: Scot, thank you so much for being my guest today.

Scot: It's been a delight. Thank you and your listeners for giving me some time.

Megan: I really enjoyed speaking with you and hearing about your experiences and all of the resulting insights that you've shared with us today. I appreciate you taking the time to be here, and I wish you and DailyPay all the best. Sounds like you guys are doing amazing things together.

Scot: We're sure trying. Thank you.

Megan: To all of our listeners, please tune in next week, and until then, take care.

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