Will microsavings platforms revolutionise the savings market?
Currently, I have around £150 sitting in a savings account without having actively ‘saved’ a penny. It’s not going to buy me a yacht, true, but perhaps a nice meal out.
That £150 is courtesy of microsavings chatbot, Plum. I set it up a few months ago, and since then it’s been diligently saving on my behalf, sweeping a few pounds out of my linked bank account every week or so. The idea behind Plum, like its UK rival Chip and Digit in the US, is that AI-powered algorithms sweep small amounts out of your bank account and into a savings account regularly – in theory taking no more than you can afford based on your balance.
What’s great about microsavings
Chip, Plum and Digit all focus on the ease of saving, and the fact you can save without really noticing. Plum goes so far as to say ‘you don’t have to lift a finger’. This isn’t 100% true – you do have to set your account up in the first place – but, after that, it does feel like you’re saving without even trying. You can just sit back, relax, and let your savings grow. And because the amounts taken are small, it doesn’t feel like you need to make spending sacrifices in order to save.
In fact, with some microsavings providers, the savings are directly linked to spending. Lloyds Bank’s ‘Save the change’ scheme, for example, lets its savings account holders opt into a scheme whereby every time they spend with their Lloyds debit card, the amount is rounded up to the nearest pound and transferred to an eligible Lloyds savings account. App-based micro-investment platform Moneybox takes a similar approach, rounding up customers’ card spending to the nearest pound and placing it into a stocks and shares ISA. As cash savings rates have been at rock bottom for some time, Moneybox is clearly aiming to take some of the fear out of investing by allowing customers to invest very small amounts that they can afford to lose.
Making savings fun
The chatbot-led interface offered by many microsaving platforms also addresses a key hurdle when it comes to getting more people saving. Saving money is boring. Sometimes the end goal is fun – a holiday, for example. But often the goal is so long-term or non-specific – retirement funds, or ‘a rainy day’ – that giving up today’s pleasures in favour of future rewards is unlikely to inspire many. The chatbot approach is intrinsically more engaging than a transfer form, and can offer rewards in the form of motivational messages when you reach certain targets. With Plum’s chatbot, for example, I’ve been getting mini-celebration messages every time I reach another £20 threshold.
Simply put, the likes of Chip, Plum and Digit make saving more fun. Put together, the combination of ease, fun and small amounts have the potential to appeal to those who people who might otherwise find the prospect of ‘saving’ daunting or unaffordable – and therefore not save at all. Positive iTunes and Google Play store comments on Chip and Digit centre around these benefits – with one user Android user of Digit effusing that: ‘I LOVE digit. It’s the first thing that has successfully helped me save.’
What’s not so great…
It’s rare – if not unheard of – for any new service to launch problem-free, and some of the app store feedback on Chip and Digit supports this concept (Plum doesn’t have its own app, so customer perceptions are less easy to gauge). Many of the low ratings for Chip revolve around problems with setup, or the time lag between when the amount to be taken is decided and when it actually makes it into your Chip account. The ‘pending’ period has come down since much of the feedback was given, and now sits at a couple of days (Plum’s pending period is similar), but it has caused some customers problems. Both Chip and Plum promise that, unless you opt in to using your overdraft for savings, their algorithm will prevent them from taking enough money to push you below the limit. But the system isn’t failsafe.
If, between the microsaver deciding how much it’ll take, and the amount leaving your account, your account balance drops, then the payment could take you into your overdraft. This has happened to both me and one of my colleagues who also uses Plum, and one review on Chip’s iTunes page suggests Chip isn’t immune either: ‘…the app took money out of my account when I was in my overdraft not once but twice (which they claim never happens)!’. To their credit, both Chip and Plum say they’ll refund any fees incurred as a result of this happening – and Chip confirmed it had done so in the case of the iTunes reviewer – but a reduction in the pending period could minimise the risk of it happening in the first place.
Uninspiring interest rates
The approach may be new and engaging, but many microsavers suffer from the same low-interest environment as traditional savings. The best rate that adult Lloyds customers can currently expect is 0.35%, if they link Save the Change to a Club Lloyds Saver account, while Plum and Chip pay no interest at all by default. FinTech platforms are trying innovative ways to get round this – Chip rewards customers that help it build its user base, offering 1% for every successful referral, up to a maximum of 5%. Meanwhile Plum is testing out a partnership with peer-to-peer lender Ratesetter (after a wait of several months from when it was first touted, I finally got an invitation to try out the new feature last week).
Digit has adopted a more traditional approach to rewards, offering its users a 1% savings bonus paid every three months – but it also charges a $2.99 monthly fee after a customer’s trial period, so you’d have to have a decent amount saved up to offset the fee with interest.
The future of microsavings
It’s fair to say it’s early days for FinTech microsavers – Chip, for example, currently has 5,000 active users; a mere drop in the savings ocean. Arguably the opportunity is as great – or greater – for incumbent banks to use microsavings to engage existing customers. Lloyds Bank, the only UK incumbent so far to embrace microsavings, has a potentially huge customer base – and Mapa Research fieldworkers who’ve used Lloyds’ Save the Change told me they appreciate the added value it offers.
Ultimately, the ‘no-hassle’ approach of microsavings combined with affordable savings amounts will inevitably appeal to those who see savings as a burden. Arguably, these benefits may prove more important than returns in a low-interest-rate environment.
And if, as those behind the Money Advice Service’s 2016 savings report will undoubtedly hope, microsavings platforms encourage the current 25% of cash-strapped ‘Non-Savers’ to jump on the savings bandwagon, the potential is huge.