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.
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.