Crying Out for an End to Overdraft Fees? Meet Grain Technology

Probably the single most despised charge at financial institutions is the overdraft fee – and a NerdWallet survey of the exact charges imposed by a selection of mid-sized (Navy Federal) through mammoth (Chase) institutions found fees at $20 (Navy Federal) and as high as $39 (KeyBank).

$35 is a particularly common charge in the survey.

Rapacious greed.

Ask yourself this. You present a Visa card at WalMart and the card is declined (and you know it’s because the balance is overextended and a payment is late).  Does the cashier say, “Sorry, bud, card declined and now you owe us another $35 for being a nuisance.”

That does not happen.

You walk out without your purchase, but you aren’t dinged for a nuisance charge.

Overdrafts are different. Charges are the norm, even though at the financial institution, all that happens is that bits and bytes shuffle around on a computer screen.

 

Why Overdraft Fees Cost You

 

In the olden days, yes, a bounced check was a hassle. It generated lots of paperwork. Many hands of many clerks got involved. Very probably, a fee was justified.

Not today. It’s all automated.

A few innovative, digital-first institutions (Simple and Chime for instance) already charge no overdraft fees. More will follow. But very probably, many legacy institutions will cling to the fees because it’s easy money.

Some credit unions have worked up their own ways to help members avoid overdrafts – Hope Credit Union tell about its tools in this podcast – but many smaller institutions don’t know exactly how to handle this issue.

So they charge overdraft fees, the old school style.

It hurts consumers. It’s terrible for a financial institution’s reputation. But it is easy money.

So now third party work-arounds are in the mix.

 

An End to Overdraft Fees

 

For the consumer, the message is simple: you can keep your legacy checking account but make yourself immune to overdraft fees.

How?

Meet Grain Technology, a start up in the Bay Area on a mission to stamp out overdraft fees and, in the process, help Thin File consumers create credit histories. Win win.

For the participating credit union, it’s plug and play. The member links the share draft account to Grain and Grain takes care of the rest.

And Grain has been invited to play in the Arizona fintech sandbox, where they may pilot its tools free from some regulatory constraints. The company already has plans to offer its tools to students at Arizona State, the nation’s biggest university.

Exactly what does Grain do? In a conversation with Carl Memnon, COO of Grain and a co-founder (hear the podcast here), the details emerged.

The building blocks are that Grain takes a new look at the consumer’s spending habits, income, and expenses. It generates a proprietary algorithm. This lets it predict when a consumer’s linked checking account is likely to go into overdraft and Grain can offer an injection of cash to inoculate against an overdraft fee.

The charge? Grain sees its APR ranging from 12% to 15.99% and it envisions cash injections typically ranging from maybe $25 to a few hundred dollars.

Result one: no more overdraft fees.

Result two: the consumer builds a credit history that Grain will report to monitoring agencies. For a Thin File young adult, that just may be a real blessing. Especially since many of those generations are averse to using conventional credit instruments.

Right now, Grain is looking to partner with credit unions that want to help members avoid overdraft fees. Most of those consumers, said Memnon, probably will come from the money center banks (with overdraft fees typically around $35 per incident).

What would prompt a BofA customer to ditch that institution in favor of a much smaller credit union? Just one overdraft fee could do it.  Especially when the recruitment pitch is that this tool will stop overdraft fees, period.

Memnon said Grain also envisions sharing its interest income with participating institutions.

All while essentially living up to the credit union mission of helping consumers manage their money better.

CU 2.0 Fintech Friday: Everyday Life

It’s CU 2.0 Fintech Friday! Today, Chris Otey sits down with Everyday Life to discuss all things credit union, fintech, and digital innovation.

Everyday Life Insurance is a fintech that provides affordable, appropriate life insurance. Everyday Life Insurance uses AI and machine learning to provide life insurance recommendations. After giving its recommendations, Everyday Life serves as a digital agent, helping people select and purchase plans.

Life insurance is slowly but surely going the way of the dinosaur in the United States. Especially for low- and middle-income families, the premiums associated with life insurance can be prohibitively expensive.

Unfortunately, a lack of life insurance can also be a burden on families. In the last year, there were more than 125,000 GoFundMe campaigns requesting memorial service funds alone. That number doesn’t include other costs, nor does it cover other crowdfunding platforms.

Clearly, life insurance for lower- and middle-income earners is necessary. However, much of the industry in its current form can’t accommodate these demographics.

And then there’s the way that life insurance is frequently sold. First, new tiers of service, additional perks, and complicated upgrades get confusing. Then, insurance salespeople make commissions on their sales, which incentives upselling to policies that people don’t need, while also contributing to higher premiums.

It shouldn’t be so difficult.

Everyday Life Insurance aims to make the process of purchasing life insurance easier. By using AI and machine learning, they can quickly determine the best policies for people. By using these new technologies—and by refusing sales commissions—they can often recommend life insurance plans that can save 80% off the cost of traditional policies.

If this sounds like an intriguing credit union–fintech partnership, check out the video and Everyday Life snapshot below!

Credit Union Fintech Snapshot: Everyday Life

Top 3 Problems Solved

  1. Life insurance recommendations
  2. Life insurance purchasing
  3. Life insurance advocacy

Everyday Life Founder: Jake Tamarkin and Dipali Trivedi

Everyday Life Market Strategy: Individual consumers and credit unions

Credit Union Fintech: Everyday Life in the News

What’s wrong with life insurance?

What kind of life insurance do you need?

Interested in seeing more fintech entrepreneurship? Check out the CU 2.0 fintech infographic, Death by 1,000 Cuts. You can see firsthand the impact fintechs have had on the credit union industry, as well as how fintech innovation can improve your income statement, balance sheet, interest margin, services, and more.

Credit Union 2.0 believes fully in the power of credit union and fintech partnerships. With the shared goal to redefine multifaceted financial services models look like to members, more credit unions are looking to partner with forward-leaning fintechs.

If you want to learn more about credit union–fintech partnerships, click here.

CU 2.0 Fintech Friday: CU Student Choice

It’s CU 2.0 Fintech Friday! Today, Chris Otey sits down with CU Student Choice to discuss all things credit union, fintech, and digital innovation.

CU Student Choice works with credit unions to provide prospective university students with student loans. Their goal is to simplify the college loan process for students. This simplification, they hope, will help students find good-value educational loans to finance their education. They also make it so that the borrower doesn’t have to reapply for loans each year.

For all of us who have taken out federal student loans at some point—that setup sounds like a breath of fresh air. Nobody likes filling out FAFSA forms year after year.

It sounds even better for those of us who took out private student loans. The interest rates on those often exceed any reasonable boundaries.

The current loan landscape is fraught with difficult decisions. CU Student Choice wants to help make those decisions easier. To that end, they look to partner not only with credit unions, but with other fintechs as well. For example, they work with Edmit to streamline the college search as well as the finance journey.

If this sounds like an intriguing credit union–fintech partnership, check out the video and CU Student Choice snapshot below!

Credit Union Fintech Snapshot: CU Student Choice

Top 3 Problems Solved

  1. Student loans
  2. Student loan refinancing
  3. Finance for students

CU Student Choice Founder: Scott Patterson

CU Student Choice Market Strategy: Credit unions and fintechs

Credit Union Fintech: CU Student Choice in the News

CU Student Choice provides student borrowers with new loan options

CU Student Choice partners with FutureFuel.io to assist with student loan repayment

Interested in seeing more fintech entrepreneurship? Check out the CU 2.0 fintech infographic, Death by 1,000 Cuts. You can see firsthand the impact fintechs have had on the credit union industry, as well as how fintech innovation can improve your income statement, balance sheet, interest margin, services, and more.

Credit Union 2.0 believes fully in the power of credit union and fintech partnerships. With the shared goal to redefine multifaceted financial services models look like to members, more credit unions are looking to partner with forward-leaning fintechs.

If you want to learn more about credit union–fintech partnerships, click here.