PerkStreet Financial a Boston based firm, found in 2008 by Dan O’Malley has announced that they will cease all business operations on September 26, 2013. Perk Street Financial is funded and backed by investors like Globespan Capital Partners of Boston and Highland Capital Partners of Cambridge.
PerkStreet business model was to disrupt the traditional banking model and cash in on the rage of customers over high bank card fees. PerkStreet offered high rewards to its users and through this approach acquired new users. The customers at Perkstreet spent over $500 Million a year in transactions. For every transaction made by a checking account customer who maintained over $5000 in balance, 2% cash back was awarded and 1% for the rest of the customers. Recently their reward program was modified to give back 2% for users who shopped online and 1% on other purchases. The company has shared over $4 Million to its customers since it started its operations. PerkStreet was hit by lower profit margins and introduction of new laws (The Dodd–Frank law). Perkstreet also lost new investor interest which made the company announce closure of its business operations.
Introduction of Dodd-Frank law in 2010 saw the capping of the swipe fees to 21 cents per transaction in comparison to 44 cents per transaction. The firm also failed to partner with traditional banks to hold and insure its deposits. This led to problems with cash flow and lowered investor confidence.
A statement on their website read "Over the last 6 months we have been pursuing additional investment to grow our business to the point it could be self-sustaining. Unfortunately, we were unable to secure more funding and now must begin the process of closing the company,"
The company has ceased to pay any further rewards to its users. This move has angered the existing customers who have not cashed in on the rewards as part of the perks program. In an email one of the customers (Gabriel Fancher) from Tennessee said “I feel cheated, and I’m really disappointed.”