XTM, Inc., the company behind digital tip payout service Tipstoday, closed an oversubscribed non-brokered private placement offering on September 29 of more than $8.5 million.
The company, which is publicly listed on the Canadian Securities Exchange (CSE), the OTCQB, and the Frankfurt Stock Exchange, originally planned to raise $6 million of gross proceeds but increased the size of the offering earlier in September citing interest from investors.
“Canada is in a strong market and XTM’s position in the Canadian hospitality industry has experienced steady growth.”
The deal consisted of 21,398,256 units at a price of $0.40 per unit. The securities issued are subject to a four-month hold period under securities laws.
XTM plans to use the proceeds to launch its product in the United States, for general working capital, and to make future “strategic acquisitions.”
“Canada is in a strong market and XTM’s position in the Canadian hospitality industry has experienced steady growth,” said XTM CEO Marilyn Schaffer. “The U.S. will provide added opportunity for the Company while we continue to gain a stronghold in Canada.”
Toronto and Miami-based XTM began trading on the CSE at the beginning of 2020. It touts itself as a FinTech innovator in the neo-banking space, “helping businesses and service workers in the hospitality and personal care space disseminate and access earned wages and gratuities.” Its Tipstoday product, and the current version of XTM, is a pivot from when the company launched in 2005 as a marketing agency.
Tipstoday allows restaurants to pay out tips digitally through a card and app. Servers are provided with a Mastercard that is periodically loaded with their tips. The product has garnered interest from major restaurant chains in North America, including Denny’s, The Keg, Maple Leaf Sports and Entertainment, and Domino’s.
However, some restaurant workers and operators have questioned the legality of the product.
Earlier this year, the concerns around Tipstoday culminated in a dispute on a restaurant industry Facebook group. Dyson Forbes, an administrator of the group, questioned whether Tipstoday is operating in a grey zone of the Ministry of Labour’s regulations around tipping, which does not approve prepaid cards as a way to provide tips. Servers that spoke with The Toronto Star about the matter also took issue with having to pay a $1.50 fee to transfer their tips to a bank account.
“It is the policy of the Employment Standards Program that employers are required to distribute tips and other gratuities to employees in cash, by cheque or by direct deposit,” a spokesperson for the Ontario Ministry of Labour told BetaKit.
“If payment is made by direct deposit, the payment must be made to an account in the employee’s name to which only the employee and persons authorized by the employee have access,” the Ministry of Labour spokesperson said.
Speaking with BetaKit earlier this year, Schaffer called Tipstoday’s offering direct deposit or a demand deposit account (DDA). However, in an interview with the Star, she reportedly, interchangeably called Tipstoday’s card a reloadable Mastercard debit card or a prepaid Mastercard.
“A prepaid Mastercard would not be considered an appropriate method of distributing tips to employees,” the Ministry of Labour spokesperson told BetaKit.
Tipstoday’s card, issued by DC Bank, is provided to servers free of cost, the $1.50 transaction fee is for transferring money to a bank account. The fee is currently placed on the server or worker rather than being absorbed by the restaurants, which are saving money by using Tipstoday, or by XTM as the processing company.
Schaffer argued Tipstoday offers a number of free ways for users to access their tips, including the recent integration of a surcharge-free ATM network. The CEO said, following concerns being raised from the community, XTM is also exploring other ways to reduce the $1.50 charge, such as electronic funds transfers (EFTs).
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Speaking with BetaKit, Schaffer called the comments made in the Facebook group unfair, claiming there was no truth to them. At the time, she noted plans to take legal action against Forbes for what she called propagating lies about Tipstoday that are destructive to the company.
For his part, Forbes told The Star he doesn’t believe he has made any libellous comments and that he simply wanted to find out whether the program was legal and took issue with workers being made to pay to access their own tip money.
Earlier this year, XTM acquired fellow Toronto-based company Tiproll, which developed a gratuity-pooling software solution. The Tiproll solution is being integrated into Tipstoday’s offering to help companies calculate tip payout.
Schaffer has likened XTM to other neobanks, like Chime, and said the goal with XTM (through Tipstoday) is to become a Canadian tech success story. The private placement and plans to use proceeds for US expansion follow the startup working with Canadian businesses as they re-opened amid changing COVID-19 restrictions.