H&R Block has had an interesting relationship with banking over the years. It used to have a banking charter to offer banking services to its tax preparation clients but it relinquished the charter back in 2014. It didn’t completely get away from offering banking services, however as it struck a deal with Axos Bank to offer the Emerald prepaid card.
According to American Banker, the Axos Bank deal came to an end when Axos Bank crossed the $10 Billion asset threshold, which meant that H&R Block could no longer earn unregulated interchange through that partnership. This only underscores the importance of interchange to support low-cost or no-cost financial services.
Now H&R Block is partnering with Meta Financial to offer a broad range of financial services and engage with its clients beyond tax season:
The Kansas City, Mo.-based firm has long enabled its customers to deposit their annual tax refunds on its Emerald prepaid debit card. But starting next tax season, Block plans to offer a digital bank account that will encourage steady year-round use.
While H&R Block has not released product details, company executives say that they plan to focus on existing customers, including many with low or moderate incomes, who lack strong banking relationships. “It will be very low-fee, high-featured and targeting the refund as the event to fund the account,” CEO Jeff Jones said in a recent interview.
H&R Block will join a crowded field of firms that offer mobile-centric accounts aimed at those who are unhappy with the fees charged by traditional banks. Chime, Varo, and Green Dot are among the top competitors.
H&R Block has a few advantages, including strong brand recognition and an existing base of 8 million customers who fit the profile that the company is targeting. In 2019, some 5.4% of U.S. households lacked an account at a bank or credit union, while 8.5% of households used reloadable prepaid debit cards, according to data from the Federal Deposit Insurance Corp.
The increasing popularity of do-it-yourself tax prep options, which may have been accelerated by the COVID-19 pandemic, is acting as a headwind to H&R Block, according to Mark Palmer, an analyst at BTIG. But he wrote in a recent research note that the company could get a boost in 2021 as consumers try to make sense of the tax treatment of income and capital gains generated during the pandemic.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group