Sunday , February 5, 2023

Amid Covid-19, Fintechs Use Debit to Boost Their Lending, Savings, And Investing Apps

With underbanked consumers and gig workers looking for financial products to help them track spending, create savings, and manage debt, many financial-technology companies are layering debit products onto their core application to attract and retain customers.

A driving force behind fintechs’ growing fondness for debit is that it is a way for them to keep consumer funds flowing through their systems, says Matt Withey, vice president, issuing products, for Sioux Falls, S.D.-based Meta Financial Group Inc.

Attaching a debit account to a lending app, for example, allows the lender to deposit funds into the account and the consumer to access those funds using a debit card, which can boost the value of the lending product to the consumer. In addition, the lender profits by earning a fee on each debit card transaction made by its customers.

“A lot of fintechs are started to solve consumer financial needs,” Withey says. “One trend we are seeing is that consumers are showing a preference for using debit to make everyday purchases, especially low-ticket purchases, and fintechs are looking for ways to boost acquisition and retention. Layering in a debit solution helps fintechs achieve that goal.”

Three areas where fintechs see debit as a value-added feature are lending, investing, and savings, says Withey. Gig workers, for example, can a use a debit account to receive payment and manage their money, including separating taxes out of their pay check and transferring money to a savings account.

Withey: “Adding a debit product is a way to keep customers more engaged with the core platform.”

The target audience for fintech applications with debit functionality includes the underbanked but also consumers who avoid the use of credit cards because they have had prior credit problems and those who prefer to pay for purchases with cash. Gig workers who need debit products to receive funds and to help them manage their money are also a prime audience. 

Developing and implementing a debit app can take about three to six months, Withey says.

Earlier this year, Meta Financial subsidiary MetaBank N.A. helped New York City-based MoneyLion Inc., a provider of mobile banking, lending, investment products and financial memberships, develop a demand-deposit account/debit product. The product, called RoarMoney debuted in July and can be used as a standalone account or in conjunction with MoneyLion’s lending and investing products.

For example, consumers can receive cash advances of up to $250 from MoneyLion’s Instacash zero-APR cash-advance product and have the funds deposited directly to their RoarMoney account. Accountholders can also set up recurring transfers from their RoarMoney account into their MoneyLion Investment account and access personal-finance tools, including Financial Heartbeat, a weekly spending report.

“Adding a debit product is a way to keep customers more engaged with the core platform on a daily basis,” Withey says.

While consumers were showing a preference for using debit to make everyday purchases, especially low-ticket ones, prior to the outbreak of the Covid-19 pandemic, use of debit cards online for making everyday purchases such as groceries and other household items has grown since the pandemic’s onset, Withey says.

“The most successful apps are the ones that are personalized to the user’s needs,” says Withey. “Debit functionality in itself is not revolutionary. What’s revolutionary is the innovation fintechs are bringing to these apps to help consumers better manage their money. It’s a chance for fintechs to grab a portion of debit spending.” 

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