- Mobile banking app Varo is letting select customers overdraw their accounts by up to $50 with no overdraft fee or interest in an initiative rolled out Tuesday.
- The optional perk will be available to customers who make at least five debit card purchases a month and set up direct deposits of $1,000 a month. Any negative balance would be recouped within 30 days from the user's next deposit, the bank said.
- A typical no-overdraft policy means a debit purchase that would overdraw an account would simply be declined. (And customers must often opt out of overdraft protection.) However, some banks and fintechs are trying to build off of that. The savings app Digit this month began offering instant transfers from savings to checking to prevent overdrafts.
Varo's initiative is likely aimed at a younger demographic. The company cited its own survey, conducted with Qualtrics, of 1,100 people age 23 to 38, revealing 41% of millennials paid more than $100 in overdraft charges in the past year. According to the same survey, 62% of millennials had to cut back or give something up to pay for a tank of gas in the past year, and 14% have had to do this almost every month.
Varo CEO Colin Walsh said the new policy is intended to create a "bridge" for users to make small purchases before payday. "Paying for a tank of gas to get to work could cost you a fee of $35 if you're running a few dollars short just before payday," he said. "We built a way for people to do that safely without having to tap credit cards."
A typical overdraft fee also runs about $35. The fees enriched financial companies by about $34.5 billion last year, according to research firm Moebs Services. About 1,200 customers filed complaints about overdraft policies to the Consumer Financial Protection Bureau’s database in the first half of 2019, CNBC reported.
Indeed, Walsh said, a counter to overdraft fees was the most requested feature among Varo customers. Prior to the rollout, Varo declined purchases that gave users a negative balance. Now, if a purchase puts a customer more than $50 into the red, it will be declined. "It's not designed to be used for large overages," Walsh told American Banker.
Varo has been granted preliminary approval for a national bank charter.