Level, a challenger bank that launched in mid-February, is hoping to entice customers by layering the deposit account it offers through its app with a high interest rate, cash back, low fees and a sleek digital design intended to better engage users.
But Level faces stiff competition from other challenger banks promoting similar features and breaks on fees. And it’s questionable whether these benefits ultimately will inspire customers to shift their primary banking to a challenger, rather than open an account on the side.
The all-digital bank, which partners with Evolve Bank & Trust for its services, offers a 2.1% yield on deposits in its bank account and 1% cash back on qualified debit card purchases as long as the customer receives a monthly direct deposit of $1,000.
Like Chime and Varo, it touts a lack of overdraft fees and the ability to access wages up to two days early. And the app contains a few features meant to make regular tasks more efficient, such as swiping up to redeem cash back or scheduling recurring transfers with a few taps.
Founder and CEO Bryce Galen also pointed to one feature he said is unique: extensive and easy-to-read data about the merchants a customer visited, including company logos, contact information, hours and the location on a map.
“People don’t understand their transactions. There are a lot of charge backs on traditional bank cards,” Galen said. “But we cross-reference data sources to present the real-world name and logo, and make it more engaging to monitor transactions.”
In the future, the team plans to build on this feature with budgeting tools that delve into how customers spend their money.
"Although we launched without budgeting tools, our vision for Level is to become a daily staple of a consumer’s life, with features that give insights on past spending and forecasts of future balance," Galen said.
They also plan to add a "boost" feature in the future that will offer increased cash back in certain spending categories.
But they still face several hurdles to standing out, both from other challenger banks and more established online institutions.
Ron Shevlin, director of research at Cornerstone Advisors, said consumers open accounts with challenger banks for three main reasons: to earn higher interest rates, to nab richer debit card rewards and to access better personal finance management tools.
Level delivers on all three fronts, to different degrees.
For example, a detailed examination of where customers shopped can be useful for those who scrutinize their statements and notice whenever something is amiss, but “way too many people don’t bother looking at credit card bills or debit card statements,” Shevlin said.
Even when they offer superior rates, challenger banks are often dwarfed by advertisements of bigger online banks, such as Ally Bank and Marcus by Goldman Sachs, which lend the established players greater credibility, Shevlin said.
Other hooks may not be enough to draw consumers away from their longtime banks completely or prove sustainable for the banks themselves. Getting early access to a paycheck may be useful for some, but requires customers to move their direct deposits to the challenger bank. Forgiving overdraft fees leaves banks more reliant on revenue from interchange fees, which is a shaky long-term proposition. And a polished digital experience is more important for continual engagement than capturing new customers in the first place, Shevlin said.
Still, some observers give the newcomer props for its new app and high savings interest rate.
Bradley Leimer, co-founder of Unconventional Ventures and an adviser to another fintech firm started by Galen, called Zero Financial, noted in a tweet that Level's savings interest rate is higher than any deposit account listed on Bankrate.
"That's a great start," he said.
