Neobanks Are Struggling To Make Good on Their Lofty Promises (bloomberg.com) 17
Some offers of high rates and low fees have strings attached. From a report: Digit is a trendy financial technology company in San Francisco that offers traditional banking services online, complete with a tool that can automatically allocate a portion of customers' deposits to a savings account to match their investing goals. The service comes with a "no overdraft guarantee." Sound too good to be true? According to the Consumer Financial Protection Bureau, some of it is. Earlier this month the regulator hit Digit, now part of Oportun Financial, a lender in San Carlos, Calif., with a $2.7 million fine for falsely advertising the no-overdraft guarantee. Turns out, the algorithm Digit used to move funds around drained some customers' checking accounts, triggering the overdraft fees. Even after customers complained, Digit failed to reimburse them, despite saying it would, the CFPB found. "While we disagree with the CFPB on this matter, we are happy to have it settled," says an Oportun spokesperson. The company says fewer than 2,000 customers were overcharged.
Digit isn't the only consumer finance company failing to meet the lofty expectations its own advertising sets. There are about 60 other such fintechs, known as "challenger banks" or "neobanks," in the US, offering a similar suite of products. They have about 23 million customers, a figure that's expected to more than double -- to 50 million -- by 2025, according to consumer finance website Bankrate.com. Despite the name, they aren't banks but technology companies that form partnerships with obscure, conventional banks to give customers digital access to their money. In doing so, neobanks can offer Federal Deposit Insurance Corp. protection to checking and savings accounts. In Digit's case, its banking-services partner is South Dakota-based MetaBank, which says it wasn't involved in the CFPB matter.
Digit isn't the only consumer finance company failing to meet the lofty expectations its own advertising sets. There are about 60 other such fintechs, known as "challenger banks" or "neobanks," in the US, offering a similar suite of products. They have about 23 million customers, a figure that's expected to more than double -- to 50 million -- by 2025, according to consumer finance website Bankrate.com. Despite the name, they aren't banks but technology companies that form partnerships with obscure, conventional banks to give customers digital access to their money. In doing so, neobanks can offer Federal Deposit Insurance Corp. protection to checking and savings accounts. In Digit's case, its banking-services partner is South Dakota-based MetaBank, which says it wasn't involved in the CFPB matter.
The Early Bird Gets the Worm (Score:5, Insightful)
Surprise! (Score:5, Insightful)
Its almost like the centuries old banking industry has rules and practices for reasons.
Imagine not being able to make money putting yourself on the hook for others obligations (over drafts) and not even asking for payment to do it.. Its easy if you try.
People are people - despite what the post modernist critical theory idiots think, the rules of society (at least American society) are not actually the product of some classist conspiracy to defeat social mobility. Rather they are based on some basic heuristics that do generally describe the behaviors of various parts of population pretty accurately. Over draft fees are not the product of some sneaky attempt to profit excessively from small balance account holders, rather they exists to 1) prevent a certain group of people from gaming the system an using overdrafts as way to secure free short term financing, 2) get your more honest but still low wherewithal clients to think careful, because otherwise they will become over drawn and won't be able to make their accounts whole in a reasonable span of time.
It does not matter if you are a bank or a fancy fin-tech middle man in front of a traditional bank with the actual accounts. Deliberately courting the kind of client that thinks "gee no over draft fees is an excellent reason to bank here" is probably going to be bad business. Even if you don't have the problems a bank has with overdrawn accounts you still fundamentally have a customer that is either broke (can't get water out of a rock) or seeking to take advantage of you. Oh and yes if you are running a fin-tech startup and you think you know something BoA or Wells etc does not know - your clients probably are smarter than you. Which brings us back to if you don't know who the mark is - you're the mark so either the fin-tech guys are grifters themselves playing some legal game, attempting to take abunch of VC money convert it to salary and run or they are themselves boobs - I would bet on the former.
Centuries-old grift! (Score:2)
Its almost like the centuries old banking industry has rules and practices for reasons.
You mean one of the most profitable industries history has ever seen? Given consumer banks barely do anything and make a ton of profit with minimal risk, it's a pretty cushy industry with lots of room for innovation. I know this both as a customer and a former engineer employed at an extremely large US bank.
In most places I've ever lived, especially smaller towns, the nicest houses on the block weren't belonging to doctors, lawyers, or famous people, but just folks who had executive roles in financial
Re: (Score:2)
I would like to think technology increases efficiency, but it seems like each sector of what has become the online economy (search, social media, shopping) is dominated by one or two players. Technology has increased efficiency - unfortunately accelerating the tendency for the market to devolve into monopoly. The niches for owner-operator businesses to duke it out is dwindling fast.
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" I know this both as a customer and a former engineer employed at an extremely large US bank. " being a disgruntled laid off desktop engineer (that's so laughable) doesn't count as actually knowing anything about how banking actually works.
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Over draft fees are not the product of some sneaky attempt to profit excessively from small balance account holders, rather they exists to 1) prevent a certain group of people from gaming the system an using overdrafts as way to secure free short term financing, 2) get your more honest but still low wherewithal clients to think careful, because otherwise they will become over drawn and won't be able to make their accounts whole in a reasonable span of time.
Those are certainly good reasons for the rules/system, but there are also cases where banks deliberately order your transactions to maximize the overdraft pain (withdraw the largest amount first, then ding you for each and every subsequent transaction that overdrafts, instead of drafting the smallest amounts first, and then dinging you for overdraft on the final large transaction that exceeds the balance)
Which I would definitely categorize as "some sneaky attempt to profit excessively from small balance acc
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Also, overdraft protection is not a loan from the bank. They are moving your own money from your other accounts you have with them, to cover the withdrawal. If you don't have another account w/ sufficient funds, overdraft protection won't do anything, your withdrawal will be denied(and you'll probably pay some other fee for that)
I don't really see any reason that can't/shouldn't be a free service, except that:
1) banks want to force you to keep money in the lowest interest yielding account (your checking a
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"Overdraft Protection" is a scam. (Score:4, Interesting)
The US is the only country I know of (and have done banking business in) that has something utterly braindead as "Overdraft Protection".
Every other country allows you to run a certain deficit, and then just denies your payments. Then charges you a normal interest on your deficit.
Overdraft Protection being applies to *every* transaction no matter how small is a major source for banks, and they'll move heaven and hell to get you to sign up for it.
Tip: It is NOT mandatory to do so, no matter what the bank tells you or tries to convince you of.
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https://www.consumerfinance.go... [consumerfinance.gov]
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How is charging you interest on the amount of your deficit any different than being charged for not having sufficient funds to cover a charge? The person is still getting dinged.
Re:"Overdraft Protection" is a scam. (Score:4, Informative)
Not sure if you're just a troll or don't understand how this works?
Paying 3.4% interest per month on a deficit, vs paying $40 for EVERY negative charge. You don't see the difference?
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In many countries in Europe you actually pay BOTH of those: $40 for every negative charge PLUS 20-30% (yearly) interest on deficit.
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Not in any European countries I've ever had a bank account. And that's quite a few of them. I'd like to see some actual documentation of that.
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It's pretty tragic really
Digit is a trendy financial technology company in San Francisco that offers traditional banking services online, complete with a tool that can automatically allocate a portion of customers' deposits to a savings account to match their investing goals. The service comes with a "no overdraft guarantee." Sound too good to be true? According to the Consumer Financial Protection Bureau, some of it is. Earlier this month the regulator hit Digit, now part of Oportun Financial, a lender in San Carlos, Calif., with a $2.7 million fine for falsely advertising the no-overdraft guarantee. Turns out, the algorithm Digit used to move funds around drained some customers' checking accounts, triggering the overdraft fees.
No that doesn't sound too good. My bank is from the 20s... 1920s... and it had automatic savings and no overdraft fees since I got the account over 10 years ago. What a joke.
This is like when the electric utility... (Score:2)
This is like when the electric utility in error disconnects the power. When they own the error, they charge a reconnection fee.
"Churn and burn," the customers like the maxim from the movie "Wall Street" only a neobank that's not even a real bank.
The second part of the post is classic "South Dakota-based MetaBank, which says it wasn't involved in the CFPB matter." Involved or investigated?
JoshK.