One digital bank is betting that eliminating a specific costly nuisance for consumers will boost the company's success.
"We're going after the biggest pain point we found for customers in this country, which was overdraft," Dave CEO Jason Wilk told Yahoo Finance Live (video above). "Everyone knows that pain of the $34 fee you get charged when you have that $5 cup of coffee when you didn't have enough money in your bank account for it."
The country's five biggest banks — JPMorgan Chase, Bank of America, Wells Fargo, Citibank, and US Bank — earned over 10% of their consumer and business banking revenue from deposit fees last year, according to Federal Deposit Insurance Corp. Typically, those with the least amount of money in their bank accounts are more likely to shoulder these fees.
"We decided that was completely unfair for customers," Wilk added. "They're paying $30 billion a year or more for access to a basic service to buy everyday essentials."
Dave's customer base is also the 120 million people who live paycheck to paycheck, and by getting rid of those fees, Wilk said his bank gives customers an additional $250 in spending power every year.
"[That's] a great way to build financial relationships," Wilk said.
He also sees other opportunities for the bank to challenge the traditional fee structure built in financial services products. He hopes to target short-term credit fees and offer credit cards and installment loans, while also getting into investing and wealth-building.
Dave wants to "really try to create more financial opportunities for folks by eradicating the huge cost to be in the basic financial system," Wilk said.
Any new offerings would add to other services Dave already provides: The digital bank also helps members sign up for side hustle gigs at companies like Uber, DoorDash, and Instacart while also offering a service to report utility and rent payments to the credit reporting bureaus. Wilk noted that the strategy can boost a person's credit score by 50 to 60 points.
The company makes money by charging $1-per-month subscription fee and earns 1% to 1.5% in interchange fees from Mastercard. And in lieu of overdraft fees, the company accepts optional tips between 0% and 15% from customers who are relieved they weren't charged an overdraft fee — the original nemesis for the bank named after the David vs. Goliath story.
"We were going up against these massive banks," Wilk said of the company's beginnings. "We were three guys that were fed up overdraft fees with no experience in the financial technology space but this is American Dream to create something that is so disruptive if you put your mind to it."