‘Our customer acquisition engines are working very well’: Dave’s Jason Wilk

We’ve been covering Dave from its early days as a tool to help everyday folks avoid overdraft fees. From there, it evolved into a lender and more recently, it’s expanded into more general banking. It also went public. 

Founder and CEO Jason Wilk joins me on the podcast to catch up with what’s been going on at Dave after the firm reported its most recent quarter. We talked a lot about ExtraCash, the firm’s short term overdraft loan and the role it plays in Dave’s customer experience and business model. 

Recent financials show that the firm has made strides to bring down its expenses while it’s also improved its monetization of its user base of 8 million people.

Jason Wilk is my guest today on the Tearsheet Podcast.

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The following excerpts were edited for clarity.

ExtraCash and Dave’s roots of Dave

We originally started out as an overdraft protection solution for any checking account in the country. I found that overdraft costs about $38 to access for as little as $5 of overdraft. 

Many people in this country rely on overdraft to go buy things like gas or groceries. So we created Dave as a way for you to connect your external account. So I would take my Chase or Wells account, connect to Dave, and we would monitor your transactions for things that could bring your account negative. 

Originally, we would spot you up to $75 at no interest, no credit check, no late fees – as a superior overdraft solution to what your bank offered.

Our anchor feature is now called ExtraCash, our banking feature that provides members up to $500 of free overdraft, which they can tap into at any time between paychecks. 

Leveraging technology in a bankless

I realized pretty early on in the journey of figuring out the company that the infrastructure and legacy tech stack of the big banks just did not really allow them to offer a free type solution like this to the everyday consumer. They need to charge overdraft fees to support all their bank branches and 100,000+ employees. 

When you factor in using technology in a bankless strategy, you can really cut out a lot of cost. And then when you layer in things like AI that we've been developing a lot to really improve our underwriting, that has just given us such a leg up to have a significant amount of operating leverage in the business and keep our costs way low for customers.

Dave’s business model

Dave’s original model was $1 a month for financial insights. So we'd give you alerts about upcoming bills like Netflix, water, power, and rent. I thought that was really important in a product – when I was growing up, to understand how much money I could truly spend before my next paycheck and with so many bills tied to auto pay, you're not sure what's happening with your credit card. It was impossible to keep track of where you stand. So $1 a month seemed like a real bargain to figure out how much money you truly had. 

The second way we make money is on the extra cash or overdraft feature. Customers can access the money entirely for free. They basically go through our underwriting process, which takes a few seconds. And they're prompted with the ability to send the money to their bank account, which takes about one to three business days for free. If someone wants the money sent to their debit card, we use the MasterCard and Visa rails for that. And we do an instant push fee for that. 

In addition, we ask for a tip, if customers want to give us a tip for any of our features within the Dave app. We were the first one to bring that to market. And people can tip us anywhere from zero to 15% of the amount that we extend them.

Mission, debit cards, and the role of overdraft fees

If you think about our mission, which is to level the financial playing field, wealthy people are not paying overdraft fees. And when they do, their bank will refund them instantly. And so when I think about a checking account, that's leveling the playing field, a product where people can access small amounts of money without having to pay absurd fees is something that I think really resonates back with the mission. 

Based on the success of ExtraCash, it was no surprise that our number one most requested feature from our members was launching our own debit card. And the reason for that is people still pay a lot of other fees to Chase and Wells that charge these egregious minimum balance fees and $15 to $20 a month if you don't have a certain amount of transactions or keep a certain amount of balance. This keeps a lot of people out of the financial system, as well. And things like customer support fees, wire fees, there's so many things that we feel like we can also disrupt by offering a free checking service. And that was our next launch that we had.

Quarterly earnings and the path to profitability

I think a good amount of our progress is just from the investments we've made in customer acquisition and marketing, our engines working really well. We reduced our marketing expense, our CAC has gone down 31% year over year, so we got a decent amount of leverage there by spending less but acquiring almost as many people as if we were to keep our normal marketing budget going. 

So that's certainly just cleaned up a lot of our cost structure across the business. We're able to renegotiate a lot of our contracts, improve some of our payment flows, and just start to really start improving our variable margin, which is a big lever on our path to profitability.

Finding marketing leverage

It's a hybrid of many things, I would say. We've done a lot of interesting work around channel expansion and channel optimization – we are very well diversified in our marketing. Now, we used to be very heavy on a couple of social channels. Now we are across a dozen different channels at scale. So we feel really good about the longevity of what we built on that side. 

The growth of fintech, from a funding perspective, crypto especially, was really creating a lot of noise in marketing. They were spending a ton of money on marketing, which led to increased CPMs across the board. And that just puts a lot of pressure on CAC in general. And then with the neobanks struggling on valuation right now, VCs are not putting as much money to work, which means, less marketing dollars coming in, and less competition, which helps.

Profitable in the past and the need to hire more

We were profitable in 2018 and 2019. So we've been there before, which gives us a lot of hope that we get there again. And the real reason we went from profitable to unprofitable was we made a pretty big investment in the team, but not an over investment, which is important. We've never done any kind of riff at the business, we feel like we're pretty right sized. 

We took the company from about 80 employees and profitable to now, where we're about 320 employees, over a couple year time period. One hiring was on our AI underwriting, and the second one was a larger investment in our banking side of the business, building up fraud departments building all of our programs.

We have a great product in ExtraCash, which drives great margin. In 2023, we actually turn the quarter on that and we can actually start to have gross margin economics be positive for that part of the business, but it's gotta be tough out there for most neobanks that are subscale and do not have another means of driving margin.

Investments in AI

We use AI in two different places in the company. One is for customer support. Our AI is answering over half of our calls at this point, which has really brought down our cost pretty significantly. And I view that to be one of the leading ways that we can disrupt these incumbent banks is using technology to keep our cost structure low. And that's something we feel gives us a competitive moat. AI is one of those great tools where we can now service hundreds of thousands of calls a month or messages and not have to have any human intervention. 

The second piece is with underwriting. Given most of our underwriting is cashflow based, we're looking at transactions, so an AI is able to look into transactions. The easiest stuff was when someone gets paid, but looking at all sorts of transaction types and inflows and outflows, and where you shop to try and develop a score. And this score is really not meant to keep people out, it's actually to try and improve access for the general public to be able to use a product like this. 

ExtraCash limits have gone from $100 to $500 over the last couple of years, and we've seen default rates go down year over year. That wouldn't be possible with a basic rules engine. And so we think AI is a really good testament that we're one of the very few companies engaged in short term lending that is seeing improvements in loss rate.

Products focused on becoming primary relationship

We’re making more investments in AI and how we can use that to better service the features of our customers. We already offer insights today. But how can that get even better with with AI? We have ExtraCash today, but given all the transactions we're using to underwrite people for ExtraCash, which is billions and billions of transactions, we've issued ExtraCash 65 million times a day. So the engine keeps getting smarter. We're excited about using that opportunity to get ourselves into other types of credit products in the future, which will give us a leg up because of our head start we have around underwriting.

Whether somebody is using our debit card or if we were to launch a credit card in the future, as an example, we'd still want people to deposit their main paycheck into Dave. So it's important that we have that checking account functionality in which they use to transact with us. We don't care as much about which piece they're using. We would drive more interchange with a credit card type product, but it's all about making sure we are the primary destination for our members. And that really is a good stepping stone towards offering future products to be someone's entire financial hub.