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Alice is software for employers that allows employees to automate pre-tax spending on things they already pay for like commuting, childcare, and healthcare, making paychecks go up and paperwork go away. For employees, it’s a tax refund every payday they can’t get at tax time.

Their Story

Pretax spending for childcare, commuting and other essential life expenses has been around a long time, but what’s been missing is an easy and automated way for people and their employers to actually take advantage of those benefits. With their company, Alice, Avi Karnani and Paul Barnes-Hoggett have built a software that automates and streamlines the otherwise logistical mess of paperwork and complicated steps that have kept people from taking full advantage of pretax spending.

Their inspiration for Alice, which launched in 2016 and now works with hundreds of companies across the U.S., started in 2014 when Karnani and Barnes-Hoggett were fellows at the Robin Hood Foundation. There, they dug deep into the financial challenges low-income New Yorkers face.

“Most tech founders tend to be affluent white men and certainly aren’t $400 away from financial instability, which 40 percent of Americans are,” Karnani says.

From that work, Karnani and Barnes- Hoggett learned that a million and a half New Yorkers working hourly jobs purchase seven-day metro cards rather than monthly subway passes, though a monthly pass offers significant savings for commuters. For many, buying a weekly pass is the only option because they are paid just enough each week to cover the expense. In the long term, low-wage earning commuters end up paying 15 percent more than those who can afford monthly cards, or an additional $125 a year on public transportation.

“The difference between a poor person and affluent person’s subway card takes $200 million a year from poor communities,” Karnani says.

There had to be a way to give low-income commuters access to this financial incentive. Karnani and Barnes-Hoggett decided to create a simple way for people to apply via text message for a 30-day loan on a monthly MetroCard. They bought thousands of dollars worth of monthly subway cards and mailed them to participants, hoping to learn a lot about small-dollar lending at the expense of losing much of this money through unpaid loans. But what they discovered surprised them: The repayment rate for participants in their MetroCard experiment was 97 percent.

“People are living stably and raising their families, but they don’t have a cushion in case of emergency,” Karnani says. “The products available to them don’t help them do that. Here is clearly where a financial solution doesn’t exist.”

That same year, they started getting calls from companies across New York interested in offering commuter benefits to their employees. This was around the time New York City made it a requirement for employers to offer commuter benefits to their workers. Suddenly, Alice had major interest from companies of all sizes eager to figure out an easy way to offer this new benefit to their employees.

Alice enables employees to safely link to their credit or debit account so that the software can automatically flag expenses that qualify for pretaxable income like childcare or ridesharing services. Alice is then able to process and apply this spending information to shield employees’ income from payroll and income taxes, resulting in more take-home pay. For example, pretaxable income expenses like dropping your kids off at daycare or covering the cost of a high healthcare deductible could now be factored into and applied to paychecks, resulting in direct savings.

“For some people, this adds thousands of dollars to your paycheck,” Karnani says. “If you buy a MetroCard, it’s a 40 cent an hour raise for free.”

The challenge for Alice was figuring out how to make the quick payoff apparent for employees, so that they would respond to texts from Alice required to verify pretax spending.

“We built Alice so that you get a text message every month that tells you how much you’ve saved in pretax spending,” Karnani says. “On payday, you get a text that says for example, that you will get $51 extra dollars on your paycheck.”

Alice then enables users to choose what they want to do with this new extra income – apply it toward savings, use it toward credit card debt, or keep it in their take-home paycheck total. Participating in CFSI’s FinLab cohort enabled Alice to see the bigger picture of how this kind of savings can impact people’s financial lives.
“The FinLab knows so much about applying the technology of finance to help people solve everyday problems,” Karnani says.

What They Do

Automated pre-tax benefits

Key People

Avi Karnani

Co-Founder, CEO

Paul Barnes-Hoggett

Co-Founder, CTO


New York, NY

2018 Challenge Winner
Learn about the challenge

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