Banks across the United States attempt to offer their customer’s the best perks and rewards in terms of interest rates, cash back, and more. While some credit cards offer cash back on all purchase, others offer cashback on items such as travel, groceries, or gas. The personal finance app Empower is taking a unique approach to offering rewards that are posed to attract millennials; they are offering 1% cash back on all debit card transactions and 1.85% interest savings accounts.
The Empower app launched over a year ago in May 2017. It was originally launched as a tool to improve consumers’ financial health, which does so through the use of various AI. Similar to Mint.com, the app utilizes data from customers’ bank statements to make recommendations to the user in terms of how much money to spend and the best auto insurance rates. What sets the app apart is the rewards mentioned earlier. According to recent research, more than half of millennials don’t have a credit card. Instead, they prefer debit cards to ensure that they are not building up any debt. What they are currently losing out on is the rewards, as most debit cards do not offer rewards.
Empower itself is no more than an app. It is not a bank, so users of the app are not able to directly bank with Empower. Instead, Empower has partnered with Evolve Bank and Trust, based in Memphis, to make money on customer deposits. Typically, a bank makes about 3.5% return on loaning out the money that customers put into their bank. Empower makes money by working with the bank to split that return. They pass on more than half of that 3.5% margin back to the customer through the 1.85% savings account, and other rewards. The exact margin that Empower earns is unknown at this point, but it’s estimated that they earn about .75% on all the deposit originated through their app.
Empower has been able to achieve great success at this point in large part due to multiple rounds of funding. In these rounds, the company has secured more than $5.5 million in funding, led by Alexis Ohanian’s VC firm Initialized Capital. With the funding, Empower has been able to achieve more than $2.2 billion in checking and savings account deposits to date, with more than 250,000 users. This base was acquired in less than 18 months.
In order to continue to grow and get to the next level, Empower will need to continue to build their user base and push the app in various social media platforms. Currently, they face competition from Chime, which is a mobile bank that has more than 1.7 million users across the United States. The company expects to reach more than $10 billion in transactions by the end of the year. Despite the stiff competition, Empower is sure they are moving in the right direction. According to Empower cofounder and CEO Warren Hogarth, “We have a strong ground game for doing very targeted social marketing.”