The H&R Block tax prep chain is returning to banking. On Thursday, the 66-year-old company launched Spruce, a no-fee account that includes a debit card and a connected savings account where money is held at its partner bank, MetaBank.
Spruce is designed to appeal to the company’s approximately 8 million potential customers who have identified themselves as underbanked, those who have a bank account but still rely on alternative financing options, such as payday loans or check cashing services. Spruce is what is known in the industry as a challenger bank, which means it is not a bank. Rather, it is a technology company that partners with a bank to offer digital products.
H&R Block ditched its bank charter in 2015 but has not stopped offering consumer financial services, including a prepaid card for depositing tax refunds.
The Spruce Account includes retailer rewards and allows customers to overdraw their accounts up to $20 without paying fees and access directly deposited funds, such as paychecks, for up to two days. earlier.
Launching a challenger bank, it’s easy to say that H&R Block is late to the party. Fintech companies like Varo, Chime, and Current have peddled accounts with similar functionality and won millions of customers over the past few years. Yet H&R Block still sees an opportunity for another challenger bank built by an established brand.
“When we talk about all the data on underserved, underbanked customers who struggle with different components of planning, saving and spending, that’s our customer,” says Jeff Jones, president and CEO of the management of H&R Block. “It’s not a segment that a fintech founder discovered and researched or anything like that. … Despite the landscape of choices, the problem is still there.
H&R Block believes its brand name and existing scale will give Spruce an edge over fintech companies. Each year, the company serves more than 21 million Americans who file their taxes, and it sees their cash flow problems firsthand. The average working-class family receives an annual tax refund of about $3,000, but that money isn’t used for lavish spending, Jones says.
“We know of them [that] when that refund arrives, every dollar counts. It’s not a great vacation,” he says. “It’s paying the bills and reducing the debt. That’s really what we’re targeting.
It also has something the challenger banks don’t have: real estate. Although H&R Block’s first year focus is on marketing accounts through its online tax preparation service, it will also advertise Spruce in select locations.
Inside Spruce Account
Spruce comes with the features expected of a new challenger bank. There are no monthly fees or minimum balance requirements. Customers can receive their paycheck up to two days earlier when they sign up for direct deposit. Free access to ATMs is also sufficient. Spruce partners with Allpoint, so you have access to over 55,000 free ATMs. Access to out-of-network ATMs costs $3 – a fee that some other bank accounts do not charge – plus any fees charged by the ATM operator.
Not all digital banks allow you to add money to your account (Ally Bank, for example, does not). But at Spruce, you can fund your account with cash at select retailers. Spruce does not charge for this feature, but the retailer can.
Spruce offers cashback when you shop at retailers like Walmart and Sephora, thanks to its partnership with Dosh, a cashback app. Rewards, which can be earned at over 10,000 stores and websites, are deposited into your savings.
A little twist on the overdraft
Overdraft fees are being factored in at a time when the Consumer Financial Protection Bureau is pressuring banks to rethink them as an important source of revenue. Banks like Ally and Capital One have announced in recent months that they are waiving fees. More recently, Bank of America made headlines by reducing its overdraft fee to $10 from $35.
Challenger banks, meanwhile, have long since ditched overdraft fees or reinvented them to become more user-friendly, allowing consumers to overdraw their accounts without charging a fee.
Spruce allows customer accounts to drop below $20 without having to pay any fees. Customers must register for the feature and must also have at least $200 in qualifying deposits over a 35-day period, among other provisions. Transactions over $20 will be rejected, but Spruce will not charge a fee.
Through the Spruce app, customers can segment savings into micro-savings goals, such as vacations or emergency funds, a feature that is becoming increasingly popular but still rare at most banks. Clients can also allocate tax refunds toward specific savings goals.
What awaits Spruce?
Courting consumers who already have bank accounts is one of the toughest challenges for fintech companies. Most consumers tend to keep the same bank account they have had for a long time. According to a recent Bankrate study, the average American adult has been using the same primary checking account for 17 years.
But H&R Block doesn’t have to completely replace the account – Spruce can be part of the combination of payment options in digital wallets. Jones imagines that customers choose to use Spruce at retailers where they know they’re getting cash back, but choose another card for another occasion. “I think that’s a realistic expectation,” he says.
H&R Block sees its brand name as one of the advantages it has in its quest for customers. It’s not a guarantee, of course. Digital banking offshoots Chase Bank’s Finn and Wells Fargo’s Greenhouse are both gone.
What hasn’t gone away, however, is the need to help improve the financial well-being of Americans.
At the end of the line
Spruce is worth considering for your day-to-day banking needs if you’re comfortable with online banking only and want to earn cashback. But it is not the only one to consider. Other accounts may interest you more, including those from challenger banks or those designed to solve specific community challenges.
Whether or not Spruce will succeed remains to be seen, but H&R Block says it already has thousands on its waiting list.
“When we pitch him, we always consider him an MVP,” Jones says. “[There are] many other things to come on our roadmap in the year.