Banks routinely charge $30 to customers who overdraw their accounts. Now one Silicon Valley company is planning to offer a free service aimed at staving off those hefty charges.
U.S. consumers who link their bank accounts to Oportun will receive text alerts when their balances fall below $100, along with the option of receiving a cash advance of up to $100. The funds will be repaid with zero interest once the account is replenished.
“It’s a safety net for your checking account,” Oportun Chief Executive Raul Vazquez said during a rollout of the product in San Francisco this week.
Unlike many Bay Area fintechs, the privately held firm operates a multistate network of more than 270 stores. It has lent out more than $5 billion to more than 1.1 million customers since it was founded in 2005.
Vazquez said in an interview that the new product will be available to a limited number of consumers in May, and more broadly in the second half of the year.
He acknowledged that the offer is something of an experiment. “We want to get a simple, easy-to-use product out there, and then learn as much as we can,” he said.
One big question is whether Oportun can recoup the costs of providing a free cash advance. The San Carlos, Calif., company’s hope is that some of the product’s users will eventually take out an Oportun loan.
Vazquez said he is not concerned about cannibalizing the existing demand for Oportun’s loans. The loans, which range from $300 to $8,000, are frequently used to pay for unexpected large expenses or planned purchases.
Meanwhile, although a $100 cash advance might not be large enough to cover a car repair, it could help to bridge a misalignment in the timing of a paycheck and when monthly bills are due.
“They’re focused on solving very different use cases,” Vazquez said. “It’s not a zero-sum game.”
The product will be available to U.S. adults whose checking accounts show three months of incoming deposits of at least $1,000.
Oportun is one of numerous companies that are seeking to solve mismatches in consumers’ cash flow — a predicament that can lead to repeated overdraft fees or high-cost payday loans. Others trying to address the problem include FlexWage, Earnin and Even.