Rounding it up
Many financial institutions make profit in three ways: interest on loans, investments, and fees. KOHO, however, is not one of these financial institutions.
KOHO makes money in one of two ways. The first is through premium account subscriptions (but we’re completely transparent about the user’s costs!).
The second is through interchange fees, the fees that merchants and retailers are charged whenever someone makes a purchase using a particular card.
As a digital-first company, KOHO is also able to save on expenses that are otherwise commonplace for financial institutions with brick-and-mortar locations.
Alright, let’s be real: We here at KOHO like to think that we’re caring and attentive to your financial needs. But this is business, baby, and as a company, KOHO does need to turn a profit to keep the lights on.
That being said, we’ve never been one to sweep things under the rug or hide behind fine print and jargon to sneakily charge you fees. If you’ve ever been curious as to how we’re actually able to stay in business without charging you an endless series of additional fees, then this is the article for you.
What’s the deal with fees?
Unfortunately, financial institutions are known for their fees. Whether it’s an account maintenance fee or a minimum balance charge, banks and credit card issuers love to pile on those added costs to your daily life.
However, fees, or a lack thereof, is one of the many ways in which KOHO is leading the world in a new approach to personal finance. Unlike most financial institutions, KOHO doesn’t rake in cash by charging you fees.
Instead, KOHO helps you save your hard-earned cash by eliminating all hidden fees. But, just how does KOHO make money and stay profitable without all these sneaky charges?
"For the most part, financial institutions turn a profit in three basic ways: interest on loans, investments, and fees."
How do banks make money?
Before we get too far ahead of ourselves, let’s talk a bit about how most banks make their money. For the most part, financial institutions turn a profit in three basic ways: interest on loans, investments, and fees.
This tried and true method is super old school and it does work really, really well... for them. For you on the other hand, it’s not a very fun situation. Here’s how it works:
Interest on loans
Loans are one of the most basic ways that banks make money. These loans, whether they’re for cars, mortgages, or personal spending, all come with a nice interest rate attached to them.
An interest rate is basically the price you have to pay for the convenience of having money available to you for a big purchase that you haven’t earned yet. These interest rates can vary quite a bit, from the lower rates you see on mortgages to the sky-high rates you might be charged for a personal loan.
At the end of the day, paying interest on a loan is a fact of life at pretty much any bank. But, while they make financial institutions a whole lot of money, loans end up costing you quite a bit in the long run too.
Most banks and credit unions also invest a lot of the funds that are deposited in their accounts. This money is invested in stocks, bonds, and other securities, which eventually put cash back into the bank’s pockets.
Of course, this doesn’t cost you anything or risk any of your money, since most Canadian chequing and savings accounts are CDIC insured up to $100,000. But, these investments are a critical part of any bank’s profit-making strategy.
The final way that financial institutions make money is by charging fees. In essence, banks charge you fees so they can hold onto your money. They then take your money (which they charge you for) and then invest it in securities and loans to turn a bigger profit.
Canadians pay some astonishingly high banking fees - upwards of $220 a year. When you think about the fact that you’re essentially paying a financial institution so they can profit off of your wages, these high fees should be on the very top of your list of things to avoid.
"Canadians pay some astonishingly high banking fees - upwards of $220 a year."
Does KOHO charge fees? How does KOHO work?
First of all, KOHO is not a bank and we’re really darn proud of that, thank you very much! Instead, KOHO is a way to manage your money without all of the hidden fees and hurdles you find at your standard financial institution.
Unlike most financial institutions, KOHO does not charge any hidden fees. We have a number of different account options, two of which are completely free to use.
KOHO does offer a paid Extra account, though, that provides users with some added benefits. We’re completely transparent about our Extra account’s fee ($9/month or $84/year) and we even offer some guidance to help you decide if it’s worth your time and money.
Besides the small added cost for KOHO Extra, we don’t really have any fees. Indeed, we have no account, NSF, withdrawal, or e-Transfer fees so you can keep more of your hard-earned money in your pockets.
The only time you’ll get charged for using KOHO is if you have a free account and make an international purchase or if you take money out of an ATM that charges its own fee. (This is the foreign exchange fee charged by Mastercard® to use their network globally.)
But, keeping with our theme of full transparency, we want you to know that KOHO does not make money off of these transactions.
In reality, we actually work with Mastercard to reduce their foreign transaction fees to the absolute minimum, saving you money in the long run. With a KOHO prepaid Mastercard, you can be sure you’re paying the minimum in fees. This makes us different from other financial institutions that actually try to profit off of your daily purchases by tacking on a bunch of unnecessary fees.
How does KOHO make money?
Okay, we get it. At this point, you’re probably asking yourself, “What’s the catch?” since this all sounds way too good to be true. But, the fact of the matter is that there are no hidden charges when you use KOHO. That’s right - none.
How does KOHO actually work? Well, KOHO is a digital-first company, so we’ve found a way to limit our expenses. This gives us a large advantage over other financial institutions with brick-and-mortar locations, which are really expensive to operate.
Plus, since we truly care about helping people save money, we’re not trying to cheat you out of your earnings with hidden fees or pester you with excessive advertisements for other services.
Instead, we make our money through our Extra account subscriptions and interchange fees.
"Unlike most financial institutions, KOHO does not charge any hidden fees. We have a number of different account options, two of which are completely free to use."
What is an interchange fee?
Basically, an interchange fee is a transaction fee that’s levied whenever someone makes a purchase with a credit or debit card, like a KOHO prepaid Mastercard. But these fees aren’t charged to you, the consumer.
Rather, merchants and retailers are charged interchange fees whenever someone makes a purchase using their debit or credit card in their store. Merchants then pay an interchange fee after each transaction to card-issuing banks, payment processors, and card payment networks. This is where most of our revenue comes from.
The reason merchants pay an interchange fee is to cover the costs of the credit card payment service, as well as the cost of protecting banks against fraud. Interestingly, interchange fees are actually a big bundle of charges that are issued to a merchant as a single lump sum or percentage.
These charges vary widely across the industry. While some financial institutions will charge a 2% interchange fee, others will bill a merchant for just 0.60% of the total sale.
But, if you own a retail store or service, you may never have been directly charged an interchange fee on your credit card sales. These charges are often lumped in with your other payment processing fees that are often automatically debited from your account.
Every single credit card or debit card issuer charges some form of interchange fee. KOHO is no exception.
The difference with KOHO is that we’re able to make enough money off of these standard interchange fees so that we don’t have to put any of our costs on you. We’re able to do this because we offer a simple service that makes managing your finances easy and painless for everyone involved.
The KOHO difference
At this point, you know that KOHO is proudly not a bank. KOHO doesn’t charge you hidden fees for having a low balance — or for simply holding an account — because we believe you work hard for your money and we’re not here to cheat you out of it.
By minimizing our overhead, we’re able to stay profitable off of interchange fees alone. This means that we can help you reach your financial goals, all without the plethora of hidden fees you find at banks. What more could you want?