A new savings app called Beam, which launches in March, is promising to give consumers higher interest rates on savings accounts — but there are some strings attached.
Beam CEO Yinan Du said while consumers get low interest on their savings accounts, banks are making big profits — according to the Federal Reserve of St. Louis, about 3 percent. But most banks pay less than 1 percent interest on savings accounts. Du said if banks cut costs, they could afford to pay more. And that’s the model behind Beam. Its accounts will be online only — no physical branches and no ATMs.
“You know, I wake up and on a Monday morning I go to my Chase branch and there will be nobody at the Chase branch, right? So these are costs that can be saved and passed on consumers.”
Beam's website promises interest rates of up to 4 percent. Beam is insured by the Federal Deposit Insurance Corp., and there are no fees, but it’s different than other online financial institutions like Ally or Discover. To cut costs even more, Du said, the company won't advertise. Instead, Beam is counting on customers to spread the word about its high-interest savings rates through social media. But Beam isn’t a bank — it’s a middle man. You’ll deposit your money through its app, but your savings sits in a small bank. Beam brings the bank new customers, and the bank pays Beam a finder’s fee. The company said it’s only offering one service: no-frills savings. So how is Beam planning to cover the cost of those high returns?
“The banks themselves would need to be excited about this," said Gerard duToit, a partner at Bain & Co. DuToit said banks already have plenty of cash. He said that could mean problems for a savings app like Beam, because banks don’t need more customers making deposits.
“Banks don't make money on the deposit account itself," he said.
They make a profit by loaning out cash and charging a higher rate than they pay for it. So will small banks pay for a service like Beam? Community banks often don’t have the name recognition of larger banks, but they still have to compete with them for customers. And that’s what Beam is betting on. Take Quontic, a community bank in Queens. It has $325 million in assets and one branch in New York City.
Step out the bank's front doors and look to the left, and you'll see an Investor's Bank branch. Look down the block to the right, and you'll see a Capitol One branch.
The bank counts on its small size to get customers. If you call the bank, a human being answers. Quontic offers 1 percent interest on business checking — you can even buy stamps at its ATMs. While the bank wants more customers, it’s not worth paying Beam a finder's fee and 4 percent interest to get them, said Steve Schnall, CEO of Quontic.
“Nobody’s paying 4 percent interest. When you look around and say, 'Well, what's the average mortgage rate today?' You know, in the threes and fours and fives. So how do you take in deposits at four, lend it at four and pay your bills?"
The numbers don’t add up, he said. But what about those other numbers — the 2 to 4 percent interest Beam is promising?
"Unfortunately things that seem too good to be true are often too good to be true," said Alan McIntyre, head of Accenture's global banking practice. “I think looking under the covers of the Beam offering that does appear to be some work required to get up to the high level."
Beam’s website says all account holders will earn a 2 percent base rate. But to get to that 4 percent, you need to log in to the app and watch ads. You know, like on YouTube, when you see ads before the content you want. Thanks to the tech revolution, McIntyre said, banks are innovating, trying new strategies to attract more customers.
“There's an example in Germany where if you sign up for a bank account, you don't get interest at all. But what you get is you get mobile minutes," he said.
But, he noted, these are all experiments.
“I think that’s the real interesting aspect of this. Will people trade time for money?”
Beam is counting on it. It says more than 30,000 consumers have signed a waiting list to use its service. And while it won’t disclose the name, Beam said it’s already signed up at least one bank — all it needs, it said.
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