Can digital savings features reignite the UK savings market?
Since the Bank of England’s recent base rate rise, there has been a renewed focus on its implications for savers. Although the increase is just a quarter of a percent, might this start to re-energise the savings market? If so, are banks’ mobile propositions in a position to help customers save excess cash and, more importantly, offer real value to those looking for assistance with their savings behaviour?
Are consumers encouraged to save?
While 0.25% might seem modest, it is at least a step in the right direction – the first since 2007 – for those with excess pennies to spare. Providers have been offering attractive monetary incentives for switching current accounts and loss leading saving accounts but those rates have gradually been eroded and have generally been capped at low amounts.
Currently, Santander’s 123 current account still boasts a higher interest rate (at 1.5%) than the best instant access savings product. However, as the base rate rise works its way through the system, and with further rises looking likely, this could be set to change in the near future. But, what will it take for this to stimulate savings behaviour and translate into increased savings account balances?
The interest rate still remains at the historic low of sub 1%. Focusing on account features is therefore likely to remain the most effective ways to drive adoption, for now at least.
Few providers offer savings goals
One underutilised feature is savings goals – a simple Personal Financial Management (PFM) tool. Goals can help customers track their spending and provide an incentive to put money aside for specific aims, e.g. saving for a holiday or a new smartphone.
Savings goals have been around for years yet, few providers offer this feature. Comparing digital channels, it is even rarer on mobile than on desktop.
Nationwide added the feature in November 2016, B Bank has had the feature since its launch last year, and Starling Bank launched its feature only weeks ago. These are currently the only UK providers to offer savings goals within their mobile apps out of the 14 audited in Mapa’s latest quarterly Mobile Banking Market Monitor.
While PFM tools often form a major part of the product proposition for UK challenger banks, they tend to focus more on spending categorisation than savings goals. For incumbent providers, a lack of PFM technology and questions around the value it can deliver to customers are potential reasons for why so few have embraced it.
Truly adding value
To set up savings goals in their mobile banking apps, customers generally state how much they want to save, what they want to save for, and when they want to save it by. The app gives them a breakdown of how much they should save towards the goal on a daily, weekly and monthly basis. Starling Bank goes one step further by allowing recurring payments to be set up, which removes the manual aspect of allocating money to the goal (though this feature is currently only available on Android).
But, how much value do savings goals actually give customers in the pursuit of saving money?
Goals provide customers with a clear and measurable amount to save, which is helpful for those with an end date and purchase in mind. However, most savings goals that we see at Mapa are still fairly basic and manual to set up. Whilst savings goals will likely become more advanced and accessible in the future, their effectiveness in encouraging customers to engage in saving remains to be seen.
Perhaps over time, improvements in machine learning and AI could enable goals to be set up automatically, with little manual input from customers. By using individual data, suggestions could be made based on what each customer can realistically afford to save each month. This type of technology already exists in the world of microsavings.
Algorithms and round-ups in microsavings
Microsavers Plum and Chip, currently use AI-powered algorithms to calculate how much people can afford to save and automatically move this money to instant-access savings accounts.
This should mean that customers can affordably save with very little effort but there have been complications with this model in the past. Because of a lag in time between when the algorithm decides on an amount to save and actually transferring said amount, one of Mapa’s fieldworkers was inadvertently forced into their overdraft. Issues such as this, can be quickly resolved by the platform but can lead to customer mistrust in the ability of similar features to positively impact their financial health.
How automated savings work varies from provider to provider. Arguably, the most popular method rounds up purchases to the nearest pound, saving the difference.
This approach is not new. Lloyds Bank has offered ‘Save The Change’ for over a decade, but it cannot be managed by the mobile app, while First Direct has a similar feature called ‘Sweep’. Challenger brand Moneybox has adopted a similar approach, albeit with a new twist, by using the rounded-up money to invest in Stocks and Shares ISAs, rather than simple savings accounts.
Time will tell…
Looking at how technology is evolving, it is likely that we soon see incumbents make use of AI-powered algorithms to evolve their savings features, either developing the technology to create their own functionality or partnering with some of the best of the current crop of microsavings providers.
Ultimately, success will be linked to effectively harnessing customer data to understand the shifts in customers’ financial goals in relation to life events, such as a new job or the purchase of property, and using this insight to help the customer determine how much they can save on a regular basis.
At present, the likelihood of digital savings features, such as goals and microsavings, stimulating the UK market is questionable. These propositions need refinement in order to deliver more robust customer experiences and to offer clear benefits to customers. However, as data sharing, AI and machine learning continue to improve in the coming months and years, it may not be long until providers evolve their features to live up to the potential that they currently have.