LOS ANGELES–A new fintech called Dave, which includes billionaire Mark Cuban among its investors, is targeting what it calls “ridiculous overdraft penalties” by making loans of up to $250 with no interest until the borrower’s next payday.
“Outsmart overdrafts,” Dave says on its website, noting, “Banks made $33 billion in overdraft fees last year alone. Dave will save you from unnecessary bank fees.”
“Everybody involved with the company has been a chronic overdrafter,” Jason Wilk, the founder and CEO of the startup, told Fast Company.
Cuban said he invested $3 million in the company because he “got crushed by overdraft fees in my twenties.”
For $1 a month, the app syncs with consumers’ checking accounts to monitor their spending habits and predict when they’re at risk of overdrawing their accounts.
“Dave’s pop-up warnings are different than bank texts that alert customers when balances are low in that it anticipates regular outlays—like rent or the utility bill—and more adamantly warns bad budgeters that danger’s ahead,” Fast Company reported.
“Overdrafting is such a widespread problem,” says Wilk. “It’s like the ultimate, most expensive form of credit.
Dave is targeting Millennials who have yet to develop the financial discipline necessary to avoid overdrafts or who lack the savings to do so. According to Wilk, “Amazon is the number 1 place in Dave that people spend their money.”
Not everyone qualifies for the app. Users must share their checking account histories the same way money-managing apps like Mint require, Fast Company reported.
“If things look a little too reckless, the (Dave logo) bear will walk away. Dave looks to verify users have the income to pay back a loan—generally two or three months of income history is required to get approved,” the report explained. “The company doesn’t pull credit histories so users won’t see an impact to their credit scores from using the app. The checking history data lets Dave’s machine learning systems predict when users might need a loan. Those algorithms let the app display an estimate of the lowest point users’ balances will reach over the next seven days. And if Dave predicts a recurring expense such as a bill, or weekly trip to the grocery store, is likely to trigger an overdraft, the app will let customers know.”
Dave says its goal is to give customers a week’s notice of a potential overdraft, ideally giving them time to trim discretionary expenses.
According to Wilk, Dave doesn’t charge any fees beyond optional gratuities, and a $3 instant transfer fee passed on to Dave’s payment provider if customers need a loan within the hour to keep their account balances in positive territory. Loans are by repaid automatically from the user’s bank account on payday. For an extra $10 fee, customers can pay by check instead.
“Beyond that fee and the monthly dollar cost for Dave, the app also brings in revenue through an unusual way for a lender: voluntary tips,” Fast Company reported. “Users are asked if and what they want to tip when the loan is paid off. Customers can choose a percentage level to tip, similar to other payment apps, or choose not to tip at all.”
Dave encourages tipping by pledging to plant a tree in Sub-Saharan Africa, in conjunction with the nonprofit Trees for the Future.