The inequality gap in America continues to grow at a staggering rate. The CEO-to-worker compensation ratio was 21-to-1 in 1965. In 2019 the ratio was 320-to-1. If you made $10 an hour in 1965, the CEO of your company would have made $210 an hour. In contrast to today, if you make $10 an hour, your CEO makes $3,200 an hour. It’s an enormous gap but a problem too complex to suggest a solution in this article. However, there are small things that can be done to improve the financial lives of the low to middle income citizens in society, and neobanks are making a difference for them.
One way is in the elimination of the NSF (Non-Sufficient Funds) fee or overdraft fee. In 2019, NSF fees accounted for nearly 6% of non-interest income at the 20 largest banks. Of the $11 billion that banks collected in NSF fees in 2019, nearly 80 percent of those fees were paid by 9% of the account holders, indicating that banks are collecting on the most financially vulnerable in society. Banks charge above $30 per NSF with a majority of those hit with these fees paying on average 10 NSF fees per year. These ruthless fees can devastate a low income family, driving them out of the banking system altogether.
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Neobanks have sprung up across Europe and the US, specifically to provide relief with the pledge to never charge overdraft fees. These consumer-friendly digital banks are gaining the trust of many, while traditional banks continue to struggle with their image of looking out for themselves as opposed to “putting the customer first.” In February of this year, Wells Fargo agreed to pay $3 billion to settle potential federal criminal and civil charges that, for more than a decade, the bank’s aggressive sales goals led to widespread consumer abuses, including millions of accounts opened without customers’ consent. In an effort to repair the damage to their reputation, Wells Fargo introduced Overdraft Rewind which eliminated the overdraft fee to consumers if they make a deposit by the morning after their account goes negative. This change, on the heels of their scandal, puts in question the sincerity of Wells Fargo’s intentions, if they were driven by a need to boost their own image or a desire to genuinely help the consumer.
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And it’s not just banks that are taking advantage of the lower to middle class. Credit card companies continue to offer high interest bearing cards in the name of helping people build their credit so they can buy a car or a home one day. They entice the consumer with cash back rewards ranging from 1% to 5%. But millennials across the U.S. carried an average of $4,712 each in credit card debt in Q1 2019, equating to over $100 a month in interest payments and fees. So in order to break even at an average of 2.5% cash back, consumers would need to spend $4,000 a month on their credit card to cover the interest payment making the cash back reward nil.
On the other hand, partnerships with cash back companies like Dosh, enable neobanks to offer cash back rewards to their account holders without the exorbitant cost of credit card interest and fees. These cash back rewards not only eliminate the cost of monthly interest fees for the consumer but are a source of savings on purchases, providing a double benefit to consumers.
Happily, neobanks are changing the face of banking through their digital banking platforms, not just in the convenience and new features offered through digital banking, but they are every bit as concerned about the bottom line of their consumers as they are their own bottom line.
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