The Demise Of Debitize – And What It Can Teach Us

The Demise Of Debitize

If you, like me, hang around in the personal finance space a lot, you get to hear about a lot of revolutionary fintech. This past weekend I was saddened to hear about the demise of an app called Debitize.

Their current users were apparently notified by e-mail, and their website now contains this message:

Screenshot of Debitize site April 8th

Trim is another app that helps lower recurring bills for you. It’s a very different service from Debitize, which essentially let you use credit cards just like a debit card by moving money out of your checking account when you made a credit card purchase. The general idea was to keep you from overspending your checking account while still collecting credit card rewards. You can read this review to learn more about how it worked.

Now that app is gone, with little notice. According to this, customers were notified by e-mail on April 6th that effective immediately there would be no new withdrawals from their checking accounts. April 10th is the last day of automatic bill scheduling, and on April 14th all money in checking accounts will be transferred back to customers. On April 27th, credit cards will be unlinked and on May 26th, their website and app will be shut down.

So with almost no notice, the app customers may have relied on to manage their credit card spending is gone. They’re left scrambling for a replacement, which seems to be difficult to find.

Will Trim soon add this functionality to their offerings under a new name? It’s certainly possible. Or perhaps the acquisition was made not to acquire the product, but the technology or the people behind the product. It could have been to buy the customer list. We’ll find out over time, I’m sure.

But in the meantime, I think this has important lessons to teach us.

Be Cautious

About half of new businesses fail in the first five years. In technology, particularly in start-ups, there’s very much an attitude of “build it now, and they will come. Once they come we’ll figure out how to make money.”

Interestingly, most businesses fail because of lack of market need.

I might come up with a great, revolutionary technology that helps you count the number of hops on your pogo stick via GPS on your phone. It can be the greatest pogo-stick-hop-counter on earth. I could offer an amazing affiliate deal, with half the cost of my sales going to an affiliate payout to websites that trumpet how great my hop counter is.

To an outsider, it will look like I’ve got a successful product launch. But ultimately, if there’s no market for counting pogo stick hops, my product will fail.

Recently we saw another commonly advertised product essentially fail – Realtyshares. Funny thing is that when you go to their website’s home page, everything looks great, professional, and amazing. But when you click on their “Invest” button, you get this message:

Screenshot of Invest button text April 8th

If you do some digging, you’ll find out that they were unable to secure funding back in November and have shut down to new investors. They’re continuing to manage existing investments, but there is some scepticism around the web how long, or how well, they’ll be doing it.

In their case, it appears their fixed costs/burn rate became higher than the amount of cash they had available. In order to secure these deals, you need a lot of cash. Without additional VC (venture capital) funding, they apparently weren’t able to sustain the business.

This gets to another common reason businesses fail – lack of capital or a lack of a sustainable business model. I’ve seen companies
like Digit change business models from free to paid in an effort to become a sustainable business.

When it comes to the latest and greatest in cool fintech involving your money, there’s going to be an element of risk involved. There’s the risk the company may go under with little to no notice. There’s a risk the company will change business models so a service you thought was free will now cost you. And there’s a risk they’ll just change the product or service entirely.

The same is true when you deal with an established or larger business. However, the risk is typically lower than you’ll see in the startup realm.

Think Critically

When you’re evaluating whether or not a new app or product is a good fit for your investments, be sure to think critically. Don’t just take the word for whatever website is touting the product.

Look at the company – how long has it been around? Does it appear to be financially stable? Is the product a novelty, or is it filling a need in the market?

Check out the security – are transactions encrypted? How much do they tout security on their site? If it’s not mentioned, that could be a red flag.

Look at your money – how is it secured? Is it insured – and if so, against what exactly? If it’s not insured, or if it’s an investment, know that you can lose money and nothing will be there to protect you. Is that a risk you want to take?

Remember back when the company Robinhood launched their “3% checking and savings” accounts that were supposedly SIPC insured, only to quietly withdraw them after SIPC came out and said, “uh, no.”? There were 850k people who signed up for their waiting list. I asked on Twitter yesterday who’s heard from them – and got virtual crickets in response. Interesting.

Think critically about where you’re seeing the product advertised. Is it being written about by users, or by affiliates? Find people using the product who aren’t being paid to promote it, and see if they’re happy. Do they find it useful, or is it more of a novelty?

How are they making money? Are they making money, or is it free? If it’s free, then the product may be you and your information. Or perhaps they’re burning VC fumes, dependent on the next round of funding to make it.

When it comes to your money, the person who cares most about it is you. So protect it. Beware of shiny new fintech, and think critically before putting your hard earned money in its hands.

If you’re a Debitize user, or fan, do you know any alternatives you can recommend? Or if you’re a fintech fan, what tips do you have for those looking to critically evaluate new product offerings? Let us know in the comments.

8 thoughts on “The Demise Of Debitize – And What It Can Teach Us”

  1. Raina - Start Living Richly (formerly Reading Richly ;)

    I had never heard of debtitze, but it sounds cool, sad it’s gone now that I know.
    I have NOT used the company below personally and have no financial relationship with them, but I heard about them last year at Fincon and thought they had an interesting, similar concept. Allowing you to use a card without overspending.
    This article trigger digging out the card.
    It looks like they have come up with a way to get points but be more aware ofo$$ spent as you use your card (look at FAQs), but it still looks far less automatic than Debitize. They could be worth investigating though.

  2. For tips on evaluating Fintech; take a look at their business model and think to yourself if that might be sustainable. I think Betterment is a good example of this. Early on they had a revenue source from their advisory fee. Granted, a revenue source does not make a successful business, but it is one check you can put in place when doing your own evaluation.

  3. Abigail

    Huh, I hadn’t even heard of Debitize, though I have a similar procedure that I use for my own purposes. I just do it all myself and make weekly credit card payments.

    Anyway, it always surprises me when people are surprised that a free service goes away or has to start charging for its use. You know they have to make money right? Eventually, the investors are going to want a return. It’s why I’m so skeptical that the Earnin’ app (which was at FinCon and is all over Hulu commercials right now) is going to make it. It’s based on a tipping system, which just seems unlikely to yield the kinds of profits they’ll need to stay afloat, let alone prosper. I hope not too many people get reliant on that service…

    1. While it appeared free to the users, they simply pulled your money today and sat on it for a month until they paid your credit card bill at the due date. Basically they sat on everyone’s money and collected the interest or invested it.

  4. I started using debitize in Sept last year. I really enjoyed it, used my credit card for the 2% back on everything, money was pulled from my checking and paid to my credit cards automatically. It was great, never had credit card debt but enjoyed the benefits. Very disappointment closed up shop overnight. More disappointing is the disappearance of any transaction history, now I”m scrambling to reconcile bank accounts and credit cards payment to ensure everything is trued up. Unlikely I’ll use trim ever due to the handling of debitize.

    1. I also really enjoyed Debitize. It was an easy way to earn credit card rewards without getting into debt. Btw, you can still download your transaction history from the website. Log into your account and check your notifications. You should see an update about the shutdown that contains a link to download your transactions.

  5. SteadiPay for iPhones seems to do the same thing. I was using Debitize until it shut down. Trying out SteadiPay now.

    1. I used Debitize and paid down debt quickly. when they closed, I went to Steadipay have been using it with the same outcome. I just found out they are closing as well for individual accounts. I didn’t even get an email. Just noticed there were no other transactions being covered. Apparently, Steadipay is shifting to business coverage and there’s a waitlist until it opens. AND I was paying for the service.

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