Neobanks utilize balance sheets to expedite stimulus payments

Traditional bank direct deposit recipients beholden to IRS “settlement date” of March 17 to receive stimulus payments

U.S. taxpayers have been the biggest winners in the distribution of stimulus checks from the IRS. Last year’s first and second rounds of stimulus checks surpassed $410 billion. This year’s wave of checks already exceeds $240 billion.

Another of the big stimulus winners: fintech.

Following the release of the most recent round of stimulus checks, traditional banks like Chase and Wells Fargo took heat on social media from customers who complained their electronic payments were taking too long to show up in their accounts. At the same time, challenger banks such as Cash App, Chime and Current earned kudos from customers whose e-checks started appearing March 12 — one day after the IRS issued the payments.

In a March 12 tweet, Chime bragged that it had already made about $600 million available to 250,000 customers. San Francisco-based Chime went on to take a dig at traditional banks and credit unions, where the stimulus money couldn’t be accessed by customers until March 17.

Stuart Sopp, founder and CEO of New York City-based Current, said the challenger bank learned from the stimulus rounds last April and December how badly its customers needed immediate access to stimulus cash.

“We used our balance sheet to make all funds immediately available for our members in each round of stimulus as part of our commitment to improving financial outcomes,” Sopp told FinLedger.

“As a fintech, we have a different business model from traditional banks, who need deposits to make money,” Sopp added. “We make money from interchange fees and have a focus on getting cash back in our members’ pockets as quickly as possible.”

Payment networks collect an interchange fee from a merchant when the holder of a credit or debit card makes a purchase. Current gets a share of each interchange fee assessed in those transactions. In 2020, merchants paid a total of $62.5 billion in so-called swipe fees to Visa and Mastercard, the two largest payment networks.

How have challenger banks like Current been able to please customers with rapid access to stimulus money? It’s not because any sort of technological disadvantage drags down traditional banks. Nacha, which runs the system for direct deposits at U.S. banks and credit unions, points out that the first wave of this month’s stimulus checks sent via direct deposit couldn’t be credited to accounts of bank and credit union customers until the IRS “settlement date” of March 17.

An umbrella group of nine bank and credit union trade organizations pinned blame on the IRS for the lag in stimulus checks popping up in consumers’ accounts. The group claimed the IRS could have sent the funds via same-day direct deposit or could have bumped up the settlement date, but “it chose not to do so.”

“It is up to the sender, in this case the IRS, to decide when it wants the money to be made available, and the IRS chose March 17,” the nine-member umbrella group said in a March 16 statement.

It’s safe to say that bank and credit union customers won’t appreciate that nuance.

Marwan Forzley, co-founder and CEO of San Francisco-based fintech startup Veem, a global payment provider, said the coronavirus pandemic — including the less-than-timely delivery of some stimulus payments — has exposed the weaknesses of traditional banks. He said the health care crisis and economic downturn have demonstrated consumers’ appreciation of fast access to money and quick, safe fund transfers.

“Even though fintech companies have a long way to go before they can put a dent in traditional financial institutions, we cannot ignore how they have changed our standard of what customers need or expect in a banking experience,” Forzley told FinLedger.

“As we move forward from the pandemic, we see a wide-open market with plenty of opportunity for both neobanks and financial technology as an industry to set themselves apart from traditional banks to gain market share,” he added. “This growth in fintech adoption will only fuel more fintech acquisitions by larger banks, who want to tap into fintech as a way to reduce friction and strengthen the online buying experience.”

In the initial round of stimulus, as many 8 million Americans received stimulus payments that were delivered through prepaid debit cards executed through fintech partners like MetaBank.

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