First they were in. Then they were out. Now they are back in again. Over the past year, the debit card rewards often considered by many consumers to be the best deal in retail checking have been threatened so severely by the pending legislation of the Durbin Amendment, many predicted their eradication altogether.
But one new venture-backed startup, at least, seems to have found a way to keep debit rewards alive in the long term. And a new round of funding for them involves some 9 million new votes of confidence for the firm.
Boston-based PerkStreet Financial, which closed a $9M Series B round of funding from Globespan Capital Partners this week, currently offers the most unlimited debit card rewards in the country at 2% cash back. In fact, the un-capped 2% cash back available to consumers on the PerkStreet Financial Debit MasterCard® is a better cash back deal than is currently offered by any debit card in the country, and is better than most credit rewards as well, especially when you consider the offer is not a fleeting introductory rate or a special category.
Better service through technology
How can this new-to-the-scene financial services startup offer these rewards? In a statement released Wednesday by PerkStreet CEO Dan O’Malley, a former executive at Capital One, the company claims to now be operating at just 30% of the cost-per-customer its competitors pay out to keep the lights on.
“By cutting out unnecessary expenses like the expensive branches our competitors are still paying for, we save about 70% of what a typical bank pays to keep things running,” noted O’Malley in the statement.
This means the now $1M-plus that the company is doling out in cash back rewards annually are a direct result of the fact that PerkStreet’s debit card-linked checking accounts can only be accessed online. The bank doesn’t have to pay for expensive branches and pay bank teller salaries. That may not sound as bad in the Facebook Era as it did 10 years ago. In just over a year since launch, PerkStreet says it has already recruited more customers than half the banks and credit unions in the country.
Perhaps the brick-and-mortar branch model that big banks have been following for decades, in an attempt to root themselves in local communities and ensure their ability to continue opening new accounts, may end up being the weight that ultimately crushes them. If PerkStreet is any indication of what’s to come in banking, then perhaps the doom-and-gloom prophecies of banks about cutting all free services and charging for basic customer service won’t have to come true after all.
Disclosure: My company, NerdWallet, maintains financial relationships with most major credit and debit card issuers, including PerkStreet. We do not, however, receive any compensation for the Perkstreet links included above.