Through a new partnership with BillFloat, Jackson Hewitt Tax Service will have a product which will allow its customers to access cash during the upcoming tax season.
Now we have a better idea of how the company will replace its refund anticipation loans. It is also a coming out of sorts for BillFloat, a California company that has carved out a niche in bill payments via relationships with several large companies that want to reduce loss rates on retail receivables. BillFloat has never worked in the tax channel, though, and in doing so it means that the company is about to assume a much large place in alternative financial services. operated on this scale.
Here are the basic terms of the product: The “SmartLine of Credit” is a line of credit of between $200 and $1,000 bearing an APR of 35 percent. With each transfer of money from the line of credit, the account holder pays a draw down fee equal to the greater of three percent of the amount transferred or ten dollars. The product lets borrowers have access to the line for as long as a year, provided that they stay current with monthly minimum installment payments. Customers pay a monthly maintenance fee of $6.95, regardless of the outstanding balance. There is a $35 fee for missing a scheduled payment. Do the math: here are the differences in costs between the SmartLine and a RAL:
You must file your taxes with Jackson Hewitt in order to apply for a SmartLine of Credit.
At what scale?
In 2012, Jackson Hewitt’s competitor, Liberty Tax, prepared 1.8 million returns. For the lack of publicly-available data from Jackson Hewitt, I will extrapolate on likely pickup of BillFloat from Liberty’s data. Like Jackson Hewitt, Liberty has sold bank products to a high share of its customers, and like Jackson Hewitt, it was prevented from doing as many RALs last year because of the same regulatory headwinds. In 2012, Liberty prepared 1.8 million returns. According to Liberty’s annual report, 51.5 percent of those filers purchased a bank product. That translates into 927,000 RACs and RALs. However, with the scarcity or RAL money in 2012, only 4.5 percent got the latter. Demand was probably still there, as the share of RAL usage was almost three times higher as recently as 2010.
Imagining that Jackson Hewitt can deliver from a similar set of consumers with the same expectations for quick refund money, then possible uptake is very high. Jackson Hewitt is even larger than Liberty, as they prepare about 2.2 million returns annually. Thus, demand for bank products at Jackson Hewitt could reach as high as one million returns. If half of the consumers that might have formerly been RAL buyers apply for a BillFloat account, then BillFloat could be processing requests for as much as $50 million in lines of credit.
Traditionally, BillFloat has paid bills on behalf of account holders directly to its partner companies in exchange for fees and interest. But the SmartLine of Credit could be the trigger for a rapid rate of growth. At this moment, the company has 43 employees, but they are hiring five people every week for customer service, data analytics, and product management.
“Our office has grown from being an eight thousand square foot space with enough extra room to have a bowling alley,” Gilbert said, “to one where we don’t have room to play marbles.”
BillFloat says that some people will be turned down and that others may only qualify for a smaller credit line. So, unlike the case with a RAL, getting an advance on a return filed at Jackson Hewitt will by no means be automatic this year.
To apply in the store, consumers are asked to supply their email address, their Social Security number, a bank account with routing numbers, and date of birth.
The consumer will tap the advance from their existing bank account – and not with an account at Golden Pacific. Golden Pacific originates the line, but the spend occurs through a bank. Furthermore, the system has some means of filtering out accounts on prepaid cards.