Inspiration for a new financial tech app literally smacked right into Josh Sanchez.
The 25-year-old University of the Incarnate Word graduate and San Antonio resident came up with the idea for FloatMe, an app designed to allow people to take out small paycheck advances without burdensome interest rates, after a VIA Metropolitan Transit bus struck his car in 2018.
Realizing it would take a while to receive insurance money to fix his car, Sanchez looked for a temporary solution to finance his vehicle’s repairs.
“Like [most] millennials, I didn’t have a credit card at the time, and I was wondering how I’d make it to the start of the next week,” Sanchez said. “So I made the mistake of taking out a payday loan and was infuriated when I saw the interest rates.”
Only about 33 percent of millennials own a credit card, according to a 2016 Bankrate survey. The survey cites fear of debt and not wanting to potentially overspend as the main reasons for their avoidance.
At the same time, payday loan rates can be even higher: the equivalent of about 400 percent annual percentage rate (APR) or more, according to paydayloaninfo.org, with the average loan term about two weeks. In other words, someone taking out a $500 payday loan with an APR of about 400 percent would owe around $575 two weeks later.
After his car accident, Sanchez was hit simultaneously with overdraft fees from his bank and payday loan payments, and he felt there had to be a better way to help people bridge the gap between their paychecks. Determined to find it, he and co-founders Ryan Cleary and Chris Brown set about developing FloatMe.
FloatMe charges users $1.99 per month to have their accounts monitored by staff and applied algorithms. This fee negates the need to charge users any interest on advances, said Sanchez, who is CEO of the company, also called FloatMe, developing the app.
After users connect their checking accounts, they are able to access up to $50 in funds per pay period. Users can either wait a day or two for the funds to post to their account, or for a “rush fee” of $2 to $4, FloatMe will send the funds immediately.
Funds are borrowed from FloatMe until the user’s next pay period. When the user’s direct deposit hits his or her account, FloatMe collects the funds, along with any potential rush fee charges.
The app also allows users to keep an eye on their own bank account balances and offers options to help them put money aside to use in an emergency.
While FloatMe requires users to prove they have an income before accessing services, the startup is not considered a lender (it’s categorized as a wage advancement service) and is not subject to federal or state lending regulations.
The name FloatMe, Sanchez said, comes from a popular phrase used by millennials when they ask a peer to borrow cash, as in “Can you float me a $10?”
Similar early-payday apps such as Earnin or FlexWage already exist. Sanchez said FloatMe is different because it allows the user to borrow only $50 per pay period, ensuring the user doesn’t over borrow and making it easier for him or her to get back on firm financial footing faster.
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FloatMe is currently in a public testing mode, with users able to request access through FloatMe’s website to download the app. It’s set to launch fully this March, said Sanchez, who will discuss FloatMe’s launch and the lessons he’s learned as a startup founder at Geekdom on Thursday at 6 p.m.
The app has just over 5,000 users, with about 70,000 on the wait list. Those on the waiting list will be able to use the app when it launches publicly next month, Sanchez said.
The 2-year-old company has garnered roughly $500,000 in seed-round funding, which has been raised from private “angel” investors, and investments by two venture firms, Cleveland-based Comeback Capital and San Francisco-based Right Side Capital.
Seeking a second round of funding, the app makers recently moved their startup into the downtown San Antonio office space of Active Capital, a local venture capital firm.
While FloatMe doesn’t fit the specific business model Active Capital looks for in startups to back, Active Capital CEO Pat Matthews said he’s invested about $100,000 in FloatMe as an angel investor.
“I’m excited to see they’ve been gaining some traction,” said Matthews, whose firm looks for companies that need very little capital to get into the market.
FloatMe has five full-time and two part-time employees and plans to expand the app’s services to include a savings account for more than emergencies, Sanchez said.
Local FloatMe user Derrick Brown, a San Antonio startup founder himself who is developing a cryptocurrency app, said he became aware of the app at a Geekdom event. Brown said he’s used the app about a dozen times and has seen it improve since its limited release in August.
“I realized right around the week of Halloween I didn’t have quite enough [money] to get the costume my 8-year-old daughter Psiri wanted to buy, and so I used FloatMe,” Brown said.
FloatMe made his daughter’s wish to go trick-or-treating as Mal from the Disney TV series The Descendants possible, Brown said.
Correction: An earlier version of this article erroneously identified a venture capital firm that invested in FloatMe. It is Right Side Capital.