H&R Block launches the challenger bank it teased last year

H&R Block is expanding its services beyond tax preparation with its own digital bank.

On Thursday, the Kansas City company announced the launch of Spruce, a challenger bank it first teased last March. At the time, Chief Executive Jeff Jones said he wanted to diversify the company’s product set and target low- to moderate-income customers without strong banking relationships.

The service resembles other challenger banks, with a no-fee spending account, the ability to set up savings goals, cash-back rewards on the Spruce debit card, credit score monitoring, early access to paychecks, and overdraft protection of up to $20. Customers can also choose to direct some of their tax refund to their savings goals. Spruce is open to all users, whether or not they use H&R Block tax services. For traditional banks, this is one more competitor seeking to lure their customers away with a low-cost digital bank.

“Spruce is a financial technology platform that combines the best features of leading neobanks with H&R Block’s trusted brand,” Jeff Jones, president and CEO of H&R Block, said in a press release. He characterized Spruce as one stage of its Block Horizons 2025, a five-year growth and transformation strategy that focuses on things such as small-business tax and mobile-first financial services.

The deposits are held by MetaBank, which has $6.7 billion of assets. It is a subsidiary of Meta Financial Group in Sioux Falls, South Dakota. Most of Spruce's revenue comes from interchange fees.

Spruce is not H&R Block’s first foray into banking. H&R Block Bank debuted in May 2006 and offered checking and savings accounts, home equity lines of credit, the Emerald prepaid debit card and more. In 2014, BofI Holding, now known as Axos Financial, agreed to buy certain assets and all the deposits of H&R Block Bank. In 2020, H&R Block wound down its partnership with Axos, which had previously issued its Emerald prepaid debit card. The company then began a new relationship with Meta Financial.

In December, it filed a trademark infringement suit against Block (formerly Square), claiming in a press release that it would “improperly capitalize on the goodwill and consumer trust cultivated by Block” and cause confusion with Block’s overlapping tax-filing service. In January, Block filed a motion to dismiss the case.