Debit Cards Aren’t For Stupid People: Q&A with PerkStreet CEO on Flying Into the Startup Abyss

Dan O’Malley created a Web-based financial services company in 2008. Crazy, to put it in his words, since the financial markets were in meltdown mode. Now his startup, PerkStreet Financial, says it has more customers than half the banks and credit unions in the country each do.

Boston-based PerkStreet has gotten plenty of buzz for its debit card that gives consumers cash rewards without the debt or limits associated with credit cards. PerkStreet account holders just have to make one transaction on the account per month to avoid a $4.50 fee (which goes to services like access to more than 37,000 free ATMs across the country in places like 7-Eleven, CVS, and WalMart).

Customers can get rewards in the form of separate debit gift cards or gift cards to places like Starbucks or Amazon. Accounts with at least a $5,000 balance earn 2 percent cash back, and those below that cutoff earn 1 percent. Points can be redeemed at any time, and PerkStreet covers the cost of activating and shipping the cards. The PerkStreet card is designed to provide the rewards benefits of a credit card while preventing consumers from racking up debt. O’Malley says a debit card—which pulls from the money already in an account—helps consumers stay on track financially by spending only what they actually have.

O’Malley, a former Capital One exec, founded the company with a few other banking veterans to challenge the industry to pivot from its focus on credit cards and rich people to serving customers with more average incomes and spending habits. It seems to be catching on. In the last six months, PerkStreet says it has quadrupled its customer base and its revenue. And earlier this month, the company announced it had raised a $9 million financing round from Globespan Capital Partners and Highland Capital Partners.

But enough from me. Read the edited transcript below from my interview with O’Malley last week to get his take on the typical PerkStreet customer, future technology rollouts from the company, and why a debit card like his (unlimited 2 percent cash back) couldn’t happen at an existing bank.

Xconomy: What pushed you to first want to start PerkStreet?

Dan O’Malley: I was at Capital One for a pretty good long time. I had spent most of my time there focusing on credit cards and co-founding and building a business based on debit cards. My eyes were really opened to the fact that the lives of the average person are very different from the lives of the average banker. I honestly think that’s the reason we ended up in a bit of pickle as a country over the last few years. There’s nowhere that’s more apparent than debit cards.

People like to use debit cards because it lets you stay on top of what you’re spending. When I was at Capital One, it was interesting. I suggested forming a new line of business focused on debit cards. Every time we’d talk with other members of the executive team, they’d say, “Aren’t debit cards for stupid people, who don’t know you should use credit cards?” I have to say, that really pissed me off.

I knew a lot of people who used debit cards. That was really motivating for … Next Page »

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3 responses to “Debit Cards Aren’t For Stupid People: Q&A with PerkStreet CEO on Flying Into the Startup Abyss”

  1. Gerrit Bradley says:

    I wish more mechanics of the business model were discussed. After reading the fine-print for PerkStreet and their rewards it appears that you only get cash-back when you use your debit card as a credit card. When a customer completes a transaction this way the merchant pays a much greater fee (based on percentage of sale), as opposed to the customer who types in their debit card number (flat fee). Congress is trying to reduce the fees charged merchants when customers unwittingly use their debit card as a credit card. Banks are all to happy to give back fees collected from merchants. Yes PerkStreet is the best at giving back the most money, but what really is happening is a transfer of costs from a merchant and their other customers to the rewards program of PerkStreet and other banks. If my understanding is wrong please detail how, and explain why there is so much lobbying by the banks to prevent Congress from reducing fees related to debit cards.