A new challenger bank is using embedded insurance and payroll-linked loans to help gig workers face unexpected financial shocks.

Better Financial, which launched this month, is the latest digital platform aiming to solve the needs of a highly specific demographic — gig workers that don’t have employer-provided health insurance coverage and face daily income volatility.

The startup, whose checking account is backed by Blue Ridge Bank and fintech Unit, uses account holders’ current payroll data and past payroll history to underwrite low-interest emergency loans.

Better Financial is hoping to appeal to the six in 10 Americans who have experienced some form of financial shock in their life and are looking for a solution in the event of any future repeats, said Saumik Tiwari, one of the startup’s co-founders who experienced his own financial shock after suffering a rugby injury in college. 

The experience spurred Saumik and his brother and co-founder Kaushik, who is Better Financial’s CEO, to explore such shocks and their impact on low-income Americans.

Other challenger banks offer their version of financial safety nets for customers who run out of funds — often in the form of an overdraft protection feature. But Kaushik Tiwari said the startup is not targeting serial over-drafters with its product.

"Our goal is to go for the average-income American who's not overdrafting every week, who doesn't have an emergency fund built and who wants the ability to lean on something in case there is an event that happens that they didn't anticipate," Kaushik Tiwari said.

Better Financial has a group insurance plan with insurance company AIG, which underwrites the startup’s accident insurance product. As long as customers maintain a $500 minimum direct deposit and spend at least $250 on their debit card each month, they are part of the group policy. 

While the product is designed for the average consumer as well as the gig or freelance worker, Better Financial only has a consumer debit card. But a business debit card is in the works, Kaushik Tiwari said.

"Right now our consumer debit card doesn't earn that much interchange, so it's helpful for us to focus on the business use case," Kaushik Tiwari said. "The broader umbrella that we're targeting is banking that fights financial shocks, because financial shocks impact a wider variety of Americans than just gig workers. But I think gig workers [are] definitely one primary focus where we want to build a business debit card and focus on them as one segment."

The majority of Better's connected payrolls are gig-platform accounts, he said. "If you're doing any sort of service job that requires physical work or a retail job, the chances of an injury or accident happening are higher. Those are definitely areas where we're seeing more demand."

The startup has 66 customers on the platform, with a goal to reach 10,000 within a year. The company raised a pre-seed round from Slow Ventures last summer. 

"Our primary vision is to basically build up to become the Costco of finance," Kaushik Tiwari said. "We charge a membership fee to defray the costs of fraud and card issuing and the monthly maintenance costs that we have to pay to the bank, but our goal is to keep adding more products."

The platform has sickness insurance in the works — a product users can add for an extra monthly fee — and is also exploring discounted virtual primary care. 

"We're basically trying to build a light version of an insurance plan," he said.