Beam was a mobile savings app launched in 2019, promising high interest rates up to 7% on FDIC-insured deposits. Initially gaining traction, Beam's downfall came when customers faced withdrawal issues, leading to an FTC lawsuit and a settlement requiring refunds and barring the company from similar future operations.
What Was Beam?
Beam's main product was a mobile savings app offering high interest rates on FDIC-insured deposits. Its unique value proposition was promising up to 7% interest with 24/7 access, leveraging a branchless model. Notably, Beam attracted significant attention for its high rates, though it ultimately faced legal action for failing to deliver on its promises.
What Happened to Beam?
The story of Beam's rise and fall is a cautionary tale of ambition, innovation, and ultimate failure:
Initial Success and Promises: Beam launched in 2019, branding itself as "the first mobile high-interest savings account for the 99%." The company claimed its app-only model allowed it to offer much higher interest rates on deposits than traditional banks, with 24/7 access to funds.
Innovative Features: Beam promised interest rates as high as 7% on FDIC-insured deposits. Users could boost their daily interest rate by completing tasks like referring new customers, leveraging a sweep account to move deposits through a network of banks.
Withdrawal Issues: Customers began facing problems with unfulfilled withdrawal requests. Complaints were often met with excuses, ranging from vendor issues to the Covid-19 pandemic, leading to a CNBC investigation that revealed many customers couldn't access their funds.
Legal Troubles: In November, the FTC sued Beam, alleging "unfair or deceptive acts." The lawsuit culminated in a settlement requiring full refunds to customers and barring Beam and its founder from operating similar businesses in the future.
Final Closure: The FTC permanently shut down Beam under a settlement that awaits federal judge approval. While Beam and its founder did not admit wrongdoing, a proposed class action suit accusing the company of fraud and negligence remains pending.
When Did Beam Shut Down?
Beam was shut down under a tentative settlement announced by the FTC on March 29, 2021. The settlement, which awaits federal judge approval, includes full refunds to customers and bars the company and its founder from operating similar businesses in the future.
Why Did Beam Shut Down?
Unfulfilled Withdrawal Requests: Beam's failure to allow customers to withdraw their money as promised led to a significant loss of trust. Many users reported unheeded withdrawal requests, which were often met with excuses ranging from vendor issues to the Covid-19 pandemic. This inability to access funds was a critical factor in Beam's downfall.
Deceptive Practices: The FTC sued Beam for "unfair or deceptive acts," highlighting the company's misleading claims about the accessibility of customer funds. Daniel Kaufman, the FTC's Acting Director of Consumer Protection, emphasized the importance of not lying about customers' ability to access their money, underscoring the deceptive nature of Beam's operations.
Legal and Regulatory Actions: The legal troubles culminated in a settlement requiring Beam to refund approximately $2.6 million to customers and barring the company and its founder from operating similar businesses in the future. This legal action was a direct response to the company's failure to meet its promises and regulatory standards.
Operational Excuses: Beam frequently blamed external factors such as vendor issues and the Covid-19 pandemic for its operational failures. These excuses did little to alleviate customer frustrations and instead highlighted the company's inability to manage its operations effectively, contributing to its eventual shutdown.
Class Action Lawsuit: In addition to the FTC's actions, a proposed class action suit accused Beam of fraud and negligence. This lawsuit further damaged the company's reputation and underscored the widespread dissatisfaction among its user base, ultimately leading to its closure.
Lessons Learned from Beam's Failure
Transparency is Crucial: Always be honest with customers about their funds' accessibility to build and maintain trust.
Manage Expectations: Avoid overpromising and underdelivering, as it can lead to legal troubles and loss of credibility.
Effective Communication: Address customer concerns promptly and transparently to prevent frustration and mistrust.
Regulatory Compliance: Ensure all operations meet legal and regulatory standards to avoid lawsuits and penalties.
Operational Resilience: Develop robust systems to handle external challenges without compromising customer service.
Customer-Centric Approach: Prioritize user experience and satisfaction to foster loyalty and positive word-of-mouth.
Accountability: Take responsibility for failures and work towards resolving issues rather than making excuses.
Legal Preparedness: Be prepared for potential legal challenges by maintaining transparent and ethical business practices.
We Shut Down Startups
Beam's failure underscores the complexities and risks involved in winding down a startup. If you're facing similar challenges, Sunset can help you navigate the legal, tax, and operational burdens seamlessly.
Don't let your startup's closure become a cautionary tale. Book a demo with Sunset today to ensure a smooth and compliant wind-down process.
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