Coatue Invests $20M in Pinwheel - Payroll API for Neobanks

The Strategic Importance of Paycheck Deposits for Neobanks

For neobanks, securing the role of the primary account for a user’s paycheck is a critically important financial objective. When a bank establishes this relationship, customers are more likely to utilize that account for a wide range of financial activities, encompassing both everyday transactions and savings initiatives.

This increased activity subsequently unlocks substantial opportunities for upselling additional financial products and generating the revenue streams that banks prioritize. However, the process of altering direct deposit instructions often presents challenges for users.

Pinwheel: Bridging the Payroll Connectivity Gap

Currently, individuals attempting to modify their direct deposit settings frequently encounter outdated and complex payroll systems. They must navigate through account and routing data entry, verification procedures, and other potentially frustrating steps, often leading to abandonment.

Pinwheel addresses this issue with a “payroll connectivity” API. This technology enables neobanks and other clients to seamlessly integrate with a user’s payroll information system, facilitating features such as direct-deposit switching, income verification, and paycheck-linked lending – a rapidly growing area.

Rapid Growth and Investment

Pinwheel’s popularity has surged, particularly during the recent pandemic, which saw a significant increase in job changes and a corresponding rise in neobank adoption as consumers sought more affordable and flexible banking solutions. The company reported an impressive 11x revenue growth in the last quarter.

Notable clients include neobank Current and mobile payment service Square Cash. This early success has attracted a new round of investment, led by Michael Gilroy of Coatue, with a $20 million Series A funding round.

Gilroy, who joined Coatue approximately two years ago from Canaan, has a strong interest in fintech and has previously invested in companies like B2B receivables platform Melio, financial transaction API Quanto, and teenage neobank Step.

Investor Participation and Team Expansion

In addition to Coatue, Primary Ventures and Semper Virens participated in this funding round. Existing seed investors, First Round Capital and Upfront Ventures, also reinvested in the company.

Pinwheel was previously profiled a year ago following a $7 million seed round, at which time the founders transitioned from offering payroll benefits to focusing on the core problem of payroll connectivity. Co-founder Curtis Lee has transitioned to full-time chairman and president of the startup.

Lee stated that the company is prioritizing direct-deposit switching as a key entry point to its broader API offerings. “Direct-deposit switching was the most pressing need for our customers, given the limited alternatives available,” he explained.

The company anticipates facilitating nearly half of all direct-deposit switches within the neobank market in the coming quarter, solidifying its position as a market leader.

Expanding Services and Revenue Streams

Clients who initiate direct deposits often expand their usage to other services, such as paycheck-linked lending. As low-fee neobanks grow their customer base, they are actively seeking new revenue streams to support their expansion. Lending represents a significant opportunity, and direct access to payroll data streamlines the loan underwriting process.

Pinwheel has been rapidly expanding its team, growing from a small group to approximately 40 employees. The company is reopening its New York City office in the Flatiron District, while maintaining a “remote-friendly” approach with roughly one-third of its workforce located outside the NYC metropolitan area.

Recent hires include Lauren Crossett, formerly of Plaid and Quovo, as head of commercial, and a VP of Engineering who will be joining the team in the coming weeks.

The investment round also included participation from a number of individual investors, including Gokul Rajaram, Adam Nash, Jackie Reses, Raj Date, Tony Xu, Shishir Mehrotra, Amit Agarwal, and Shiva Rajaraman.