San Antonio-based Frost Bank launched a new feature for its direct deposit account holders that allows them to access their wages up to two days early, the bank announced Tuesday.
"People come up short from time to time," said Jimmy Stead, chief consumer banking officer at Frost Bank. "When you think about that, you start to realize something like getting your paycheck a couple days early could really help people. Maybe it helps them not have to put off buying their groceries, maybe it helps them pay a bill on time or maybe it reduces stress ... The intent here is to help people, especially those who are in that situation."
The feature, which Frost is calling "Early Payday," will automatically be available to the roughly 70% of the bank’s customers who have direct deposit set up in their checking accounts, Stead said.
The early payday rollout is the second product the bank has launched in the past several months to help customers who may be in a financial pinch.
The $44 billion-asset bank launched an overdraft grace feature in April for customers who have at least $500 in direct deposits posted to their account within the previous 33 days.
For those eligible customers, the feature prevents them from being charged a fee when they overdraw their checking accounts on transactions up to $100.
Both the overdraft grace feature and the early wage access product mirror the offerings many neobanks advertise.
"From our perspective, you really need to be rethinking traditional banking constraints, and some of the neobanks have done that," Stead said of the growing number of traditional banks introducing features their challenger bank competitors already offer.
The new products reflect the bank’s efforts to revamp the traditional bank model while still offering services that set them apart from digital outlets, Stead said.
"We want to give our customers better experiences, but we also do it in ways that some of the neobanks might not. If you call us, we're going to answer our phone without a call tree, and we've got a well-trained person on the phone, ready to help you," he said.
To give its customers early access to their direct deposit, the bank fronts the money to the customer as soon as it gets a notification from the Federal Reserve that the funds are on the way. It then settles with the central bank two days later.
"We're taking on a little bit of risk here, but we think it's worth it. We think this is going to really help people, and we're happy to do it," Stead said.
Early paycheck access gained attention amid the government rollout of stimulus payments, when challenger banks beat traditional institutions like JPMorgan Chase and Wells Fargo in depositing the funds in customer accounts.
Digital banks, which often offer early direct deposit for eligible customers, applied the same model to the stimulus checks.
Several other traditional banks that have revamped either their overdraft or direct deposit models include, PNC, Huntington Bank, Capital One and Fifth Third Bank. Ally Bank made headlines in June when it said it would eliminate overdraft fees altogether.
Frost’s new products — and others from incumbent banks — may be following in neobanks' footsteps. But unlike digital-only competitors like Varo Bank and Chime, Frost Bank is bullish on the future of the branch.
Over the past 2½ years, the bank has added 25 branches in the Houston area, and plans to open another 25 in Dallas in a similar time frame starting in January, Stead said.
"We've been really committed to organic growth versus mergers and acquisitions," he said. "We think it's an important value proposition to have someone to talk to. We want to be in the communities that we serve."
