Legislation, digitization, and profitability confront fintechs. Charlie Youakim and Jason Wilk think neobanks must help clients profit. Neobanks are different, but 60%+ Americans value financial access.
Fintechs are facing challenges as private venture capital firms, Wall Street activists, and the public prioritize profits over exponential sales growth. Legislation and the digital transition to fee-free solutions are additional hurdles for these organizations. Charlie Youakim and Jason Wilk believe that empowering clients through new methods can help neobanks become profitable, citing the need for financial access as a priority for over 60% of Americans who live paycheck to paycheck. Wilk states that there is no single profitability pivot strategy as different neobanks serve different purposes.
Dave and Sezzle have had success with budget-stretching advice, with Dave set to become a public neobank with 1.9 million monthly customers by 2022 and Sezzle planning to list on the NASDAQ after making profits in the last two quarters. Mark Cuban and other investors supported Dave’s 2021 IPO, which received media attention. Wilk’s unhappiness with incumbent bank overdraft fees—up to $400 per customer per year—inspired Dave.
Finding the Problem Areas
“Until I started Dave, I was hit with thousands of dollars in overdraft fees over 15 years, and I was unhappy with the level of service I was able to get as a customer with not a lot of money,” Wilk said.
He noted that the initial Dave product was an app that linked to an existing checking account and set up notifications to tell users if their accounts were in risk of “going negative” and suffering overdraft fees equivalent to 1,700% APR.
Holders may thus prevent $35–$100 fees for a $5 charge that put accounts in the negative. Dave would initially “spot” customers for free to help them through any temporary hardship between paychecks (at first $75 but now up to $500, with the typical stopgap supplied by Dave being $120 to $200 for the ExtraCash service).
Dave paid $1 per month for financial insights and alerts after connecting to his principal bank accounts, which provided raw data on daily, monthly, and looming transactions that could lead to overdraft.
The business also pioneered a system where clients could “tip” for their service. Dave’s low default rate warranted an average tip of $3 to $4.
He stated that Dave’s approach has extended to include a partner bank-operated checking account and a Dave debit card, even though the anchor product—fee-free cash advances—remains the same. Direct deposit and AI modeling give the business continuous income to back cash advances.
For members who receive these advances the day after joining, Plaid can link Dave accounts to incumbents. Dave’s AI model parses pay stubs and other Plaid data.
Understanding the Overlap and Moving Past Interchange
Sezzle’s Youakim said Dave’s clients were similar. In a world of perpetual inflation and paycheck-to-paycheck stress, buy now, pay later (BNPL) consumers enjoy installment options.
Sezzle and Dave said these consumers are not the ones with $250,000 or more who worry about FDIC insurance and switch to major banks to protect their money. These customers prefer banks that waive fees and improve their finances.
“Our customer is always in a recession,” our CFO says, Youakim said. We’re helping that consumer improve their credit score and advance financially.
Wilk added, “this is where we show up and do our best work.”
The $1 per month subscription has created a community of users who can then use the business‘ “side hustle” concept to apply for freelance jobs and generate money via surveys.
Dave makes money by processing ACH and other transactions. He generates additional income.
Youakim suggested subscriptions to diversify Sezzle beyond exchange. The goal is to determine where, when, and how to extend services during the tech apocalypse.
Both firm owners discussed service increases to increase profitability. Many FinTechs are obliged to expand into other industries to enhance gross profit, creating new competitive paradigms.
Wilk said Dave will succeed again. The company has increased variable margins and used partnerships to become profitable.
“Most Americans need help building their credit and avoiding fees in their banking lives,” Wilk said. They’ll always need financial advice.