A focus on quality customer service and a heavily promoted debit
cards rewards programme represent PerkStreet Financial’s
proposition to differentiate itself. The success of its marketing
drive is apparent from impressive customer acquisition statistics –
a client base doubling every six months. Charles


.“From my perspective at Capital One, I could
see what was coming. People were moving away from the branches,
spending more time at ATMs and online, the delivery channels were
in complete transformation, and yet the banking industry was so
rooted to its investments that it fought that change, and still
does,” said O’Malley.

So he left to form what he describes as “a new
way to bank, free from the constraints of the branch

“I could see it coming, we all could, but
banks were sort of powerless to change that fast. Take the fact
that about two-thirds of Americans now choose to spend on debit
cards, and then add in direct deposit, which means no one is coming
in to branches anymore, and the handwriting is on the wall,”
O’Malley said.

In many ways, PerkStreet Financial is a bet
that several direct banking startups made several years ago – an
idea before its time, perhaps. Or perhaps not – O’Malley said that
today, one in five Americans are direct banking customers. It’s
growing so rapidly that O’Malley has a hard time with the numbers –
PerkStreet itself is doubling its account base every six months or
so and now is as large as three-quarters of the banks in the US, he

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“Right now we are just focusing on ensuring
that we are able to manage the growth we are experiencing on the
deposit side,” he said. “Our focus has to remain on making the
customer experience flawless, so we’re spending a lot of time on
perfecting systems so there is no gap between them.”

PerkStreet attracts customers to direct
banking through a simple proposition: the online bank pays
customers up to an eye-popping 5% cash back bonus for spending on
their debit cards. Customers get up to 1% back on their daily
expenditures, up to 2% at the biggest online retailers and up to 5%
back at merchants that the PerkStreet online community chooses
every month. Forget free checking: this is checking that pays,

“We have focused on one product – the checking
account,” O’Malley said. “Everyone has one, everyone needs one, and
if you can provide the consumer with real value in the form of cash
back, they’ll try you out, and then if you
make it work for them, they never leave.”

O’Malley said that for the average PerkStreet
customer, that cash back amounts to about $500 a year.

“So we’re paying you to bank with us, and
we’re not asking you to spend a bunch of money you don’t have. It’s
a compelling proposition, and it’s based entirely on being able to
control costs through direct banking.”

PerkStreet partners with Bancorp Bank of
Delaware to host deposits for them, and then takes a percentage of
the money made when that money is loaned out, plus a cut of debit
transactions fees and any other income stemming from those

The money from that revenue mix pays for
PerkStreet’s cash back bonus and then some, O’Malley said, because
its costs are so low compared to bricks-and-mortar branch

To illustrate the yawning gap between direct
banks and their traditional alter egos, O’Malley pointed to the
$80bn the banking industry spends just to maintain its

“That’s $800 a year for every household in the
US, and that just reflects what it takes to maintain the status
quo,” he said. “That is not reflecting at all the new branches
being built every day as banks can only compete by expanding their
geographic footprint.”

Meanwhile, he said, PerkStreet is talking to
those banks’ customers online, for virtually nothing, and offering
to pay them to leave.

“There will be a day of reckoning,” he said.
“In 10 years, the majority of American consumers will be banking
with a direct bank.”

PerkStreet also is deepening its product
bench, offering high-yield saving accounts and readying a new
financial planning tool that will combine budgeting, planning and

“Imagine earning rewards for smart financial
decisions, and for creating a family budget, and for creating a
financial plan,” O’Malley said. “It will be the first of its kind
that we know of, and it really changes the way consumers interact
with the bank.”

One product not in PerkStreet’s immediate
plans: a credit card.

“We might design one eventually that rewards
people for paying off their outstanding credit card balances, but
that’s the only way we’d get into the credit card business,” he
said. “We want to move in the opposite direction of that.”

O’Malley said that ultimately, all banks are
in the customer acquisition business, and the key is to find a
cost-effective way to onboard customers. Financial institutions
that don’t embrace the online channel to minimize onboarding costs
and talk with customers on social media channels are doing
themselves grave harm, he said, by making it easy for competitors
like PerkStreet to enter the conversation.

Most of its marketing is viral, keeping costs
even lower, and partnering with a host of financial blogs and
do-it-yourself sites has brought in waves of new customers.

“We’re going to keep focusing on cash back,
and perks. With all the discontent out there these days on the fee
front, we like our chances.”