A community bank is gearing up to offer a unique type of reward, just as another bank is exiting the space.
Old Missouri Bank, in Springfield, announced this month that it is partnering with Bits of Stock, a stock loyalty and rewards company, to develop the capability for customers to earn fractional stock rewards on debit card transactions. Every time customers swipe their debit card with one of the publicly traded merchants that partners with Bits of Stock, the customer would earn a percentage of a share of the merchant's stock. Old Missouri customers may also get the opportunity to round up purchases to the nearest dollar and invest the difference in fractional shares.
Bits of Stock currently offers a direct-to-consumer app where users can link bank accounts to earn fractional shares with partner merchants when they pay with cards attached to those accounts, as well as capabilities to help retailers and loyalty programs extend their own fractional-share rewards.
This is Bits of Stock's first bank partnership. It echoes one that launched about a year ago but recently wound down,
Even though fractional stock rewards are a feature of some challenger banks, notably Stash, and fractional share investing is more widespread among fintechs and brokerage firms, this type of reward is seemingly rare among traditional financial institutions. TAB, which has $1.2 billion of assets, appeared to be the first to offer it. Now the $1.2 billion-asset OMB appears to be the only bank now with such a rewards program.
The concept is relatively untested. But OMB is optimistic about having first-mover advantage.
"It's a differentiator," said Steve Bishop, chief operations officer at OMB.
TAB Bank's debit account, which rewards users with partial stock shares, is boosting the company's appeal among consumers who are younger, tech-savvy and underbanked.
OMB hopes to launch the program within six months. The bank and Bits of Stock are working with core provider Jack Henry to integrate these services into OMB's core and its Jack Henry Banno digital-banking platform. The two are also ironing out details with their regulators, including how to advertise an investment account that is not insured by the Federal Deposit Insurance Corp. alongside FDIC-backed bank accounts and deliver proper disclosures.
There are several goals behind OMB's move.
"It enables our customers to start accessing wealth they don't have right now," said Bishop, noting that potential millennial and Generation Z customers may not otherwise have a brokerage account. Another motivator is to lower the bank's cost of funds by attracting low-cost deposits, as it has grown rapidly over the past few years.
Jean Sullivan, head of wealth management at Celent, notes that investing in fractional shares is not a rare feature, especially among large custodians and wealth management firms. For instance, it could be a way to move down-market and extend investing services to mass affluent clients.
But as a debit card reward, "The jury is still out," she said. "It depends on how it is presented to the client, how seamless it is, and whether it is a taxable event. That could be a deterrent."
TAB Bank
Recently, the bank announced that it discontinued the Flow accounts because Bumped ceased its rewards program at the end of 2022. The existing TAB accounts were converted to Kasasa Cash Back checking accounts in December.
In a statement, the bank said that in the five months preceding the account's national release in August 2022, nearly 3,000 individuals joined the waiting list for TAB Flow.
"TAB has utilized waitlists in advance of previous product launches, but we had never seen conversion rates as high as we did," the company said in a statement.
Some challenger banks have also entered this space.
Stash, a banking and investing app,
DriveWealth, an embedded investing company, helps fintechs including Cash App, MoneyLion and the recently launched neobank
