PerkStreet Financial, an innovative online bank that offered rewards “perks” to its users, announced Monday that it was shutting down after failing to secure much-need funding.
“Over the last 6 months we have been pursuing additional investment to grow our business to the point it could be self-sustaining,” the company wrote in an email to customers that was also posted on its website. “Unfortunately, we were unable to secure more funding and now must begin the process of closing the company.”
PerkStreet was founded by former Capital One executive Dan O’Malley in 2008, but it really rose to prominence in 2011, when large banks started responding to consumer-friendly financial reforms by heaping new fees on their bank accounts. When Bank of America announced that it would introduce a debit card usage fee (a plan it later scrapped), PerkStreet saw twice as many new customers sign up the next day as usual.
That’s because it reversed the usual customer-bank relationship: Not only did it not charge account maintenance fees, it actually offered rewards for customers.
If you had more than $5,000 in your account, you got 2% cash-back for using its debit card; balances below that threshold got 1% cash back. Like many rewards credit cards, it also had rotating categories offering 5% cash-back.
But last year, it started to change how it rewarded account holders: It did away with the $5,000 account threshold and said that all customers, regardless of balance, would get 1% cash-back on most purchases and 2% back at select retailers, including Amazon (AMZN) and Target (TGT). At the time, it said that it was doing so because most account holders weren’t maintaining balances above the threshold.
As attractive as the deal was, it looks like PerkStreet just didn’t have a sustainable business model. The company said Monday that it will officially cease operations on Sept. 26. The good news is that account holders can still use their cards, write checks and generally use their accounts through one of PerkStreet’s two servicing banks, Provident and Bancorp; the accounts will convert automatically.
But the perks will cease, and customers with unclaimed perk balances are out of luck. On its Twitter account, the bank is apologizing to angry customers and explaining that it “just didn’t have the financial capability to pay out perks earned.”
That’s cold comfort for customers who switched over in hopes of finding a friendlier bank, and are now finding that they can’t use their hard-earned cash-back rewards.
Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.