Fintech startup Upgrade has been positioning itself as a neobank. And yet, the company has mostly been focused on personal loans and more recently credit cards. You couldn’t just replace your bank account with Upgrade. Upgrade is adding two important missing pieces of the puzzle, with checking accounts and debit cards.
With today’s launch, Upgrade competes more directly with other challenger banks, such as Chime, N26 and others. You can open a checking account, control it from a mobile app and send and receive money from that account.
There are no monthly fees and no minimum account balance. Under the hood, Cross River Bank provides FDIC-insured checking accounts.
You also get a debit card with your checking account. When it comes to ATM withdrawals, Upgrade will reimburse ATM fees for its most loyal customers up to five times a month. You need to maintain a minimum balance or set up direct payroll deposit for that feature.
Debit card payments on subscriptions and common everyday expenses let you earn 2% cash back. Eligible purchases include convenience stores, gas stations, restaurants, food deliveries, etc. You earn 1% on other debit charges.
Rewards on debit card transactions are somewhat uncommon. Most financial companies focus on credit card rewards as the interchange fees on credit card transactions are much higher. Debit cards don’t generate as much interchange revenue.
“Neobanks in particular cannot pay high rewards (or any rewards at all) on debit cards because the interchange fee is often their only source of revenue,” Upgrade CEO Renaud Laplanche told me in an email.
And interchange fees can add up if you manage to attract millions of customers. According to The Information, Chime generated more than $600 million in revenue last year thanks to interchange fees.
The company still plans to generate the vast majority of its revenue from credit products. “Our strategy is to monetize our base through credit,” Laplanche said.
Upgrade also offers a credit card with 1.5% cash back on all purchases. If, for one reason or another, you can’t pay your monthly balance payment, the company helps you combine monthly charges into installment plans that you can pay back over 24 to 60 months. You pay down your balance at a fixed rate with equal monthly payments. Upgrade customers who use the company’s checking account will get lower rates on Upgrade loans.
You can also get a personal loan from Upgrade without a credit card or a checking account. And maybe you’ll end up discovering Upgrade’s other products after signing up to a personal loan.