‘Dave performs well in every macroeconomic environment’: Dave’s Jason Wilk on shifting up a gear in 2023

Neobank Dave reported its Q4'22 results recently, indicating factors that helped the company weather the economic downturn financially a year after going public.

The company reported:

• GAAP revenue was $59.6 million during Q4, up 45% from the same period last year. 
• GAAP net loss was $21.5 million compared to $15.2 million in the fourth quarter of 2021 -- on a quarterly basis, improved by 55% from Q3 2022.
• Adjusted EBITDA was a loss of $11.8 million compared to a loss of $12.6 million during the year-ago period and up by 59% from Q3 2022.

In Q3 2022, the company’s losses expanded to $47.5 million from $7.9 million in 2021, with a steep 97% decline in its shares in November.

Later the company got caught up in the rolling wave of reports about getting listed in the money-losing companies during the market turbulence after its stocks saw sharp losses in its first year of going public. Moreover, the company was dealt a major blow by the Fed's strategy of increasing interest rates to combat inflation.

By redirecting its strategies the neobank navigated its way through the challenging fourth quarter and pulled through the bear market in comparison to Q3 2022.

I spoke to Jason Wilk, CEO of Dave about what were the strategy drivers to ride out the market downturn in 2022, and in what ways the neobank is shifting its sails in 2023.

What contributed to increased revenue in Q4 2022?

Jason Wilk, Dave: Our increased revenue in Q4 resulted from an increase in both new customers (543,000 in Q4FY2022) and additional engagement from existing customers, which further increased monthly transacting members (MTMs) to nearly 2 million. 

We also saw a continued acceleration in our Dave Card business with Dave Debit Card spend increasing 34% to $263 million compared to $197 million (vs Q3 2022). Dave's revenue last quarter grew 45% despite a reduction in our marketing spend. 

What plans/strategies are you undertaking to minimize losses and achieve profitability going forward? 

Jason Wilk, Dave: Dave was profitable in 2018 and 2019, prior to going public in 2022, and we plan to be profitable in 2024. 

Dave was focused on high growth through its IPO and accelerated hiring to meet customer and growth demands in 2021. Dave is now on a strong path to profitability by 2024 and strategically slowed the pace of hiring in 2022. 

We have been adding new services, raising ARPU (average revenue per user), and moderating seasonally adjusted marketing expenses as we move toward profitability. In Q4, we reduced our customer acquisition costs by 31%. 

Did Dave change its existing strategies or adopt new ones to weather the economic storm in FY2022?

Jason Wilk, Dave: We've leaned in on our AI development which has helped us in a few ways. 

First, it's improved our underwriting to safely increase ExtraCash limits for members while reducing default rates. Second, we've been able to transition more customer support to AI. The combination is improving revenue and reducing costs, all of which makes us well-suited to weather an economic storm. 

Additionally, we have placed a strong emphasis on driving more usage of our Dave debit card, which saw 90% YOY growth, which is a great source of revenue that doesn't have credit risk associated with it.

After going public in January 2022, how did the neobank navigate a crowded fintech market and gain ground? 

Jason Wilk, Dave: Dave’s products are in demand by millions of Americans who are underserved by the incumbents and stand apart from our competitors. Our business has excellent unit economics, is capital efficient, and has a bright future ahead. The markets are volatile and we’re prepared to deliver strong results regardless of the market conditions. 

How is Dave leveraging technology and AI for more sophisticated financial transaction capabilities?

Jason Wilk, Dave: At the center of Dave lies powerful AI and machine learning capabilities that enable the company to offer its products at a significant discount to incumbents. AI is used in almost every aspect of the company, most notably in its ExtraCash underwriting model and customer support.

Data is our differentiator – we have deeper insights into macro trends, enabling sounder underwriting decisions. We have real-time cash flow data from over 14,000 financial institutions and continuously revise and retrain our ML/AL models. We can make an instant decision based on income and spending data with a linked bank account. 

• For new members, we leverage their historical bank transaction data to better understand their income and spending patterns to make credit instantly available the day a new member downloads the app. 
• For existing members, we supplement the historical bank account information with their behavior on the Dave app (spending and advance repayment) to make even more accurate underwriting decisions to maximize access to credit for members while simultaneously optimizing for our business objectives.

Since inception, we have dispersed over 65 million advances to members, which has provided us with the unique ability to refine and retrain our underwriting models based on a massive proprietary dataset. We continuously retrain and optimize our AI-based underwriting models to maximize our portfolio economics.

The data we receive allows us to detect in real-time changes in income, cash flow spending, and savings patterns as well as employment status, which we use as a leading indicator to underwrite and automatically settle with our members. 

By contrast, FICO-based underwriting predicates credit decisions on bureau data, which offer lagging indicators of customer risk, with no insight into when customers can afford to make a payment. We believe our usage of AI in underwriting gives Dave a structural advantage in a stressed economic environment.

What are the opportunities and challenges facing neobanks in the current environment of high inflation and looming recession?

Jason Wilk, Dave: In the current economic environment, I believe there are significant sector tailwinds that will benefit demand for Dave. 

With personal balance sheets coming under pressure due to inflation and rising costs, combined with other credit providers cutting back on risk, consumers are more likely to seek short-term liquidity solutions such as ExtraCash to bridge their financial gaps. This supply and demand dynamic leaves us optimistic about our growth prospects and we believe that we're uniquely positioned to service this demand based on our differentiated underwriting capabilities.

Dave performs well in every macroeconomic environment, aside from a heavy stimulus environment, such as during the onset of the COVID-19 pandemic. The current economic picture for our customers is good, and Dave continues to see fewer defaults on ExtraCash advances. Our customer base is well represented in the record low unemployment rates that keep being reported, and we feel very good about that. 

The challenge with high inflation is the Fed is combating it with high-interest rates, which puts downward pressure on valuations, especially for companies that are not yet profitable. 

What’s next for Dave in 2023?

Jason Wilk, Dave: We will continue to enhance our product platform with a steady stream of banking and credit products to generate additional revenue streams that will allow us to better support our loyal customer base, and introduce tools that will help them build a better financial future. 

We are ultimately working towards becoming a primary destination for our members to deposit their paychecks, putting Dave at the center of their financial lives. We are making meaningful progress towards this objective with card engagement reaching record levels in Q4. 

ExtraCash, our anchor product, has been established as a significant driver of initial card users. As a result, member engagement has continued to improve with the average transaction from MTMs for the fourth quarter growing to 5.2x and Dave Card spending volume increasing 34% quarter-over-quarter and over 50% year-over-year. 

We anticipate these positive trends to continue with ongoing product development focused on capping this opportunity in 2023.