Dedicated to Deposits: Deals, Data, and Discussion
About Ken Tumin About Ken Tumin - Founder and Editor

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

Featured Savings Rates

Popular Posts

Featured Accounts

PerkStreet Financial Will Be Ceasing All Business Operations

POSTED ON BY

PerkStreet Financial

On Monday PerkStreet Financial announced on its website that it will be “closing permanently and ceasing all business operations on September 26, 2013.” Customers’ account balances are safe, but customers are losing their perk balances that they accrued from their debit card purchases. PerkStreet provided the following reason for the closure on its website:

Over the last 6 months we have been pursuing additional investment to grow our business to the point it could be self-sustaining. Unfortunately, we were unable to secure more funding and now must begin the process of closing the company.

I first reported on PerkStreet Financial and its online checking account in 2009. Instead of paying interest, the checking account rewarded customers with cash back from debit card purchases. The cash back reward percentages ranged from 1% to 5%. To get the most cash back, customers could exchange their rewards for gift cards. So that was the incentive to accumulate rewards.

As you might expect, there are many angry PerkStreet customers who will be unable to redeem their perk balances. I’ve seen one customer who commented that he had accumulated rewards of almost $100. Those rewards are now lost.

Even though the perk balances may be lost, account balances are safe. The money continues to be FDIC insured. PerkStreet Financial was not a bank. The deposits were kept at partner banks. Early accounts were issued by The Bancorp Bank, and more recent accounts were issued by Provident Bank. Customers of The Bancorp Bank accounts are being allowed to keep their accounts opened. However, Provident Bank accounts will be closed on September 26, 2013.

Lessons Learned?

The most important lesson in my opinion is that you shouldn’t wait to redeem any points or rewards that you accrue with any company. There’s usually no protection for those accumulated points.

This also shows that you shouldn’t be too reliant on any one bank. Not only do banks go out of business, they can be acquired or get new management which can result in big changes to your accounts. So those reward programs can end, interest rates can fall and new fees can be imposed. If you have a great deal at any bank or credit union, I’m afraid it’s unlikely that it will last over the long run. It’s always a good idea to be prepared to move your money when things change.

This closure may also show that debit card reward programs are not as profitable for banks as we think. There have been worries that the Durbin Amendment that capped debit card interchange fees for large banks would reduce revenue for small banks. Since PerkStreet Financial’s reward program was so dependent on debit cards, I reviewed how the new regulation might affect PerkStreet in 2011.

After this news, we have to ask if the debit card regulations might affect high-yield reward checking accounts which also depend heavily on debit card purchases. I don’t think we’ll see banks shutting down like PerkStreet, but the reward checking accounts could become less attractive with lower rates and balance caps. Also, we may see more banks ending their reward checking accounts. We have already seen this happening over the last two years. Hopefully, banks will find ways to keep these accounts profitable even if debit card purchases become less profitable. We have seen at least one institution that allows its reward checking customers to use their credit card instead of debit card to qualify for the high interest rate. That’s one way that banks and credit unions could keep their reward checking accounts profitable and still be appealing to savers.

Update 8/19/2013: PerkStreet customers whose accounts were held at Provident Bank have received the full value of their remaining perks. This is according to PerkStreet.


  Tags: PerkStreet Financial, checking account

Related Posts

Comments
9 comments.
Comment #1 by me1004 posted on
me1004
Why does this whole set up sound like a major scam to me? This reminds me a lot of a Ponzi scheme. 

Let's see. They were not a bank, they simply took your money, and gave you no interest on it whatsoever, and required a minimum in the account of $5,000 at all times -- interest free. They deposited that money in other actual banks -- and presumably drew interest on those deposits but did not give that interest to you, kept it as their own profit. Your income was solely from your rebates on your debit card purchases. And now, with no forewarning at all, the simply shut the program down ont he sopt and erase all yoru accumulated debit card rebates, leaving youwith zereo income from anyh source. 

Even the supposed 2%-5% rebates hardly justified the minimum of $5,000 (plus more to cover any purchases with the debit card -- that is, you were never getting even the 2% on that $5000, only possibly on any amount over that $5,000. That is, the first $5,000 never got you anything but zero, but they would be getting certainly more an 1% on it from the banks) you had on deposit. You'd have to do some complicated math to figure it out, but you were never really getting the equivalent of 2% on your deposit. That is, if you spent $5,000 a year on the debit card, you would have to have that $5000 in the account over and above the $5000 minimum, so $10000 in the account. That would make it the equivalent of 1% on the entire balance --but to get that, you have to work at it with debit car deposits. You can get batter than that without working at it! You would have to be a big spender --and on a debit card -- to get anything to make this worthwhile.

Even the supposed 5% was never really 5%. That was only a discount on online purchases you made from their associated retailers -- who of course were charging higher enough prices to make that not really anything or only very little, not really 5%.

So, what they had going here was money coming in from reliable sources of bank interest to them from your money. They also got payments every time you used your debit card, which payments in and of themselves would have pretty much covered the rebate that credited to you, leaving the interest they earned on your deposit as pure profit to them. They paid out only on the basis of how much you spent, but that would be a lot less than you have in your bank account interest free, and would pretty much be covered by the fees they collect from merchants for your use of the card. Few people would have been spending so much on their debit cards to actually get any benefit out of this. All the others were pure profit to this place -- but this place had no expense or risk of a loan department, little overheard as compared to a real bank. 

So where did their money go? It was coming in from interest on bank deposits and merchant fees on the use of the debit card, and going out to these rebates. There was little overhead for lack of any loan department. How did they run out of money -- how could that even be possible if they were operating honestly with this scheme? Is it any surprise that investors did not want to give them any money? Sure sounds like they were fleecing it in oversized paychecks and other, and when they emptied it all out, now they just close down the rebates on the spot and so also leave the depositors fleeced of everyting they worked for, all their uncashed rebate credits. 

How could such a scam ever be allowed? How can this go without screaming for a serous investigation? Isn't this exactly how the mafia operates -- exactly? They only thing lacking is that the mafia then takes the final fleecing by burning the business down so they also can collect on insurance.

Am I missing something here? Or are thee federal regulators?

11
Comment #2 by Anonymous posted on
Anonymous
To #1, nice observayion, however you missed to point out that The Bancorp Bank was the holding company only for PerkStreet and avoided all of the bank's regulations by classifying the PerkStreet as non bank. There are many online only banks that operate in the shadow of the law who are formed by bigger banks as transaction account entiries.

10
Comment #3 by me1004 posted on
me1004
Yes, I knew that was a non-bank -- that's why I said it had little overhead "as compared to a real bank." I thought that point was in the story and so I didn't need to point that out more elaborately -- but I must have read that in the New York Times story I read about this. But thanks for highlighting that point for readers.

9
Comment #4 by Anonymous posted on
Anonymous
If the scams perpetrated by the financial geniuses were at this level there would not have been any financial crisis. This is small potatoes. Hey anyone got some derivatives?

2
Comment #5 by Milton (anonymous) posted on
Milton
How come when a company tries a new business model and it fails, we hear so many screams of "SCAM!"?

New things are tried, and just about all of them fail.

That's innovation, not deception.

If the swings of capatalism are too much for you to stomach, move to an authortarian country, where you can enjoy the predictability of stagnation.

 

9
Comment #7 by Anonymous posted on
Anonymous
The biggest lesson learned: Use your credit cards for all your purchases, especially with the real financial issuers like Chase, Bank of America, Capital 1, Discover, Citibank, American Express, or PenFed. Better protection for your money. No need to pre-pay and have money earn 0%; when there are accounts that allow you to earn about 1% (or even 2-4% at the time Perkstreet was popular"). And, ontop of that, the credit cards gave at least 1% cashback; sometimes more depending on the card and category.

As noted by others, The Bancorp Bank is a holding company of deposits. (Perkstreet is technically like a rewards company like e-rewards or such. There business was to make money through partnership with the Bancorp). The Bancorp Bank is a commerical branchless bank that provides several financial services and products; primarily in payment solutions (they're big in the pre-paid debit card business), and in healthcare solutions (they're #5 as custodian of health savings accounts in US.)

To #1, back in the early days of 2009 or 2010, Perkstreet was truly giving 2% cash back on the money you spent from your "checking account", or, I should say pre-paid account.., at least for the first 45 or 60 days (it may have been 90 days promotional 2% with no minimum balance, at the time).

6
Comment #8 by Anonymous posted on
Anonymous
Overhead: postage for perk rewards giftcards, salaries and benefits for 20-30 employees, office furniture, supplies, technology, utilities, ads, and office rent at 114 State Street Boston, MA. In the early years, they' probably had high overhead for each account; but, in last 2 or so years it's less as they made it more difficult to earn anything more than 1% and required $5,000 plus more for spending to get 2% perks. For the past 5 years, they were able to raise like $15 million from venture capital, primarily Globespan Capital and Highland Capital. And, they say they gave out over $4 million dollars in perks. Revenue from the transactions must've been too low for Perkstreet, or their investors to give them more.

Anyone know if there are any MA state laws or Consumer Protection Laws in regards to perks rewards that customers have earned upto the announcement date? Would any gift card laws be applied?

7
Comment #9 by rjm (anonymous) posted on
rjm
Never opened a PerkStreet acct. Sounded too much like "flybynight" to me.

4