Dave CEO: Cash Flow-Based Underwriting Critical to Helping Paycheck-to-Paycheck Consumer

It’s been quite a year so far for FinTechs in general and neobanks in particular. However, Jason Wilk, CEO of digital banking app Dave, doesn’t view the volatility rocking the FinTech sector in the wake of the Synapse bankruptcy as a long-lived seismic shift.

“I think it’s a one off,” he told Karen Webster, “with an issue going on with their ledger that was inaccurate. And that’s causing issues with the banks that were involved. They have their records and Synapse has something that’s completely different.”

And as for Dave’s own exposure to Synapse, he said, “We were fortunate to shift off of Synapse a long time ago. We used to use them for some payment processing.”  

The fallout, of course, has been that in the wake of the bankruptcy, thousands of customers are still owed money, and need to access that money too.

One impact that will play out over time, Wilk said, is that it will be harder over the next several years for new upstarts to enter the space. Neobank competitors to Dave or Chime, he said, are going to need significant funding, which may be hard to come by, and the banks and regulators will require that full compliance programs be set up, with risk management programs fine-tuned to manage disputes. 

And for Dave, he said, whose latest quarter has been marked by 14% growth in monthly transacting users, signing on to a digital banking suite to get access to short-term liquidity is luring banking customers weary of traditional checking and savings account setups.

“The average customer at a major bank is still paying $300 to $400 a year just to maintain a basic checking account, due to overdraft and minimum balance fees. You switch to Dave and all those fees go away.”

Making Ends Meet

As he told Webster of Dave’s typical client: “They tend to always be in a ‘recessionary period.’  They’re living paycheck to paycheck and things have always been expensive for these consumers,” he said.  For these households earnings between $25,000 to $60,000 annually, rising gas prices and other daily expenses have eaten into disposable income.

Typically, those consumers have turned to short-term credit options — payday loans, for example — to make ends meet. But the credit conduits are tightening. Even subprime credit companies, he said, are in what Wilk termed “risk off” mode. 

“Credit scores are not helping these customers get approved for a credit card right now,” Wilk said.

Traditional banking products and services have fees attached — equating to hundreds of dollars annually. 

What’s on Offer

Against that backdrop, Dave’s app offers spending accounts and ExtraCash advances (up to $500) that members pay back at a later date. Members can opt, too, to leave “tips” when taking an advance, a portion of which helps the firm run ExtraCash, and the rest goes to Feeding America via donations.

“The amount that we hear about the most from our customers,” Wilk said, “is that they are really looking for $150 to $200 between paychecks to cover the everyday essentials. It’s about ‘topping up your balance’ to pay your rent on time or cover water and gas bills or pay for groceries.”

Underpinning it all is account-level data and analytics that approves cash advances and Dave debit cards and other products based on cash flow data tied to hundreds and thousands of transactions.

See more: Neobank Dave Attributes Best-Ever Credit Performance to AI-Driven Underwriting Engine

“The underwriting has gotten more powerful,” Wilk said, “there are so many data points,” to be harnessed and analyzed that “the longer that the customer stays with us, the better their limits will get with us as well.”

“Over the last few years,” he told Webster, “we’ve seen a shift in the composition of our revenue, with more of it coming from the debit side of the company.” 

The long-term strategy, he said, is tied to taking debit and ExtraCash users and transitioning them to thinking of Dave as their primary bank — especially with direct deposit. The company, it must be noted, offers bank accounts that are powered by Evolve Bank and Trust. Dave’s subscription and interchange business is now 20% of the company’s consolidated top line, where it had been nil just a few years ago.

Back-to-Back Profits

As he told Webster, amid the investments in AI, “The most powerful thing about building a digital bank offering is that there is inherent operating leverage built into the business.”

The underwriting and the advanced analytics, Wilk said, have resulted in a sticky customer base — and two straight quarters of profitability. In the company’s most recent quarter, total revenues were up 25% year over year and ExtraCash origination growth surged 32% to $1 billion. Delinquency rates improved year over year as well among the 2.2 million monthly transacting members out of 10 million users who have registered for the app.

“These are not the same 2.2 million users each month,” Wilk said, “and they are cycling in and out of that 10 million base.” The long-term goal, he said, is to have relationships that are as sticky as a bank’s stretching out a decade or more. 

The company recently rolled out 4% APY on its checking and savings accounts, so that consumers can make money on their daily balances. In addition, Dave has added a feature that enables members to make money by answering brand surveys — with cash funded directly to the Dave cards.

“We have customers who have made more than $1,000 using that product,” he said.

At the end of last year, he noted, the company’s GPT offering has already proven to be “impactful” to the company’s operating efficiency, responding to customers’ queries, with a goal of eventually pushing recommendations to customers based on spending patterns.

“This is a way we can expand the customer base without expanding our service centers,” he told Webster, adding, “We feel good about our ability to acquire customers while maintaining Dave’s profitability.”