Out-of-network ATM fees. Monthly service fees. Card replacement fees. Foreign exchange fees. Wire transfer fees. Overdraft fees. Check fees. Fees, fees, fees, fees, fees.
Oh and interest, of course.
Banking used to be built on a simple economic premise: tuck money away from customers into deposit accounts that pay interest, and then lend that money back out as loans at a higher interest rate. Today though, the modern bank — much like the airline industry — thrives on fees tacked on to basic services. JP Morgan Chase made about $77.44 billion on interest income, but $50 billion on non-interest income (i.e. fees) according to MarketWatch.
As the pressure builds on banks to increase that income, consumers can be bamboozled into paying all kinds of fees they didn’t even know they were expected to pay.
That’s where Cushion comes in. The San Francisco-based fintech startup offers a consumer app that sucks in the transaction history from its users’ bank accounts, determines what fees have been assessed, and then conducts negotiations on their behalf to get a refund. It’s designed to be incentive-aligned with consumers by only taking a commission on any returned cash.
The company has had early success so far, and (officially) announced today that it raised $2.8 million in seed capital from Afore Capital, which also invested in the company’s pre-seed round, as well as from 9Yards Capital, Flourish, Green Cow Venture Capital, and Vestigo Ventures. Its original Form D filing indicated the firm was targeting $2.5 million, and its amended filing in February showed $2.8 million.
Why Cushion rebuilt Plaid from the ground up
Founder Paul Kesserwani got the idea for Cushion after leaving his job at Twitter. While taking some time off to think about what he wanted to do next, he was helping his parents manage their bank accounts while they were living in Lebanon. Due to bank security policies, his parents weren’t able to login to their accounts from Lebanon, and eventually, they faced a mountain of banking fees as their accounts went unattended. As Kesserwani investigated, he turned to his own accounts, and realized he had also been paying fees to the tune of $400 that he had no memory of agreeing to.
That sparked the idea for Cushion, which he formed in late 2016, and he launched an alpha product built on Plaid, the well-known banking API platform. But he soon got kicked off the service for holding on to users’ credentials, which violated Plaid’s policies. Cushion uses the credentials to negotiate on your behalf by accessing the secure messaging systems available at many large banks, and so it is a critical feature to make the product work as intended.
Kesserwani decided to get around these restrictions by simply building his own Plaid infrastructure. “If we build our own infrastructure, then we can offer a whole suite of services that no one else can offer,” he explained to me. The new platform launched in early January 2018.
With the infrastructure, Cushion can now securely download a user’s transaction history, and also initiate and conduct requests for refunds and fee reductions directly with banks automatically.
Surprisingly, many banks are quite amenable to these negotiations. Kesserwani told me the story of a user who was driving around looking for a payday loan, ended up downloading Cushion, and “by dinner had $500 in her pocket.” The company said that more than $1 million of fees have been returned to customers since its founding.
Building personal financial (active) management
The personal financial management space has been a hot one, with market leaders like Mint and Credit Karma offering products that paint a picture of a user’s finances and directing users to sign up for credit card offers and other financial products as a business model.
Kesserwani sees a distinction between what those sorts of companies have done and what he wants to do with Cushion. “A lot of folks are focusing on very sexy problems like investing, but we feel that there are a lot of foundational problems” that no one is solving, he explained.
Rather than just offering a financial snapshot with some recommendations, he wants Cushion to be able to actively manage a users’s financial accounts to maximize their financial health. That might mean switching to a cheaper bank account offering with lower fees, or hypothetically, working with a utility company to change the deadline of a heating bill so that a user doesn’t need a payday loan to pay it in the first place.
“If we do our job properly, we are introducing this whole new concept of managing your finances for you,” Kesserwani explained. He believes that the enormous complexity of the U.S. consumer banking and financial world lends itself to more activist software intervention.
That mission is what attracted Emmalyn Shaw of Flourish Ventures, an economic resilience-focused firm spinout of the Omidyar Network that has raised $300 million in new capital and also merged in a $200 million existing portfolio. What attracted her to Cushion is the incentive alignment between the company and its users. It only makes money when its customers make money, unlike with advertising-driven products. Plus, it can democratize finance by making fee negotiations accessible to all.
Will banks continue to negotiate though?
Cushion says it already has “onboarded tens of thousands” of users on the platform. But what happens if millions of people use AI to reach out to their banks to get fee reductions? Eventually, won’t the banks stop negotiating and just give their AI interlocutors the middle finger?
Kesserwani appreciates that perspective, but repeatedly mentioned in our interview that banks face extremely high customer service costs in working with customers. He sees an opportunity for Cushion to potentially work directly with banks and offer them far more affordable mechanisms to interact with their customers.
Plus, the cost of acquiring a new banking customer is extreme, and Cushion could help direct customers to lower-fee banking accounts. Without the high marketing costs required to make such programs profitable, Cushion might be able to make lower fee accounts more viable for banks.
That trajectory is all in the future though. For now, the company is looking to hire more engineers and data scientists, and continue to build out its AI recommendations, hoping to one day turn its overly fee’d customers into freed customers.