The Envelope System Goes Digital

There’s a brand new player hitting the personal financial management space today. And its inspiration is a method of savings that isn’t fancy, is probably the way that your parents and grandparents saved for vacations, holiday presents and other big purchases, and what Dave Ramsey says is the most reliable way to make sure money is actually saved: The Envelope System.

But this version is all digital – and it’s called Money Clouds.

In a press release announcing its launch today, a venture five years in the making, Money Clouds describes itself as a platform that helps customers define and save for individual goals outside of their primary bank account.

In an interview with MPD CEO Karen Webster prior to the launch, Jason Conway, Founder and CEO of Quemulus (the company behind Money Clouds), told Webster that he “loved hearing” her tell him that the envelope method is how her parents saved money when she was growing up, because it speaks to how widely the concept resonates.

He relates an anecdote of his own, which inspired what is now Money Clouds.

About 10 years ago, he was in a Walmart and witnessed a number of people putting Christmas gifts on layaway in as early as August.

“I kept thinking, ‘That's amazing that people will do that so far in advance.’”

Conway’s objective is simple: wanting to help people, at the basic level, save for their future. The envelope system, he believes, is really easy for people to grasp – and therefore, use.

Almost literally, Webster observes, recalling life at home as a kid with parents who used it. With the envelope system, her Mom or Dad could see how much they were saving, and hold it in their hand. Webster and Conway agree that a system that makes savings simple and approachable — and, quite importantly, tangible — will make it easier for people to stick with the program. The digitization of money can derail that since it makes money, and therefore savings, too much of an abstract concept.

Although just about anyone can benefit from Money Clouds’ simple savings solution, its target demographic right now is focused on who will immediately benefit – those who have a need to save for a goal and where an app that helps make that a reality could come in handy: brides-to-be and mothers-to-be.

Money Clouds works like this:

Individuals create “clouds” that represent individual savings goals - $350 to buy to-die for wedding shoes, $2,500 for the honeymoon, $950 for a crib. Clouds are linked to a checking account and money is moved from the checking account to the “clouds,” where the tally is updated each time a deposit to that cloud is made. Once the goal is hit, the spending fun begins. Funds are FDIC insured.

Webster wondered whether people are nervous about putting checking account credentials into a cloud-based app, given fears of hacking and account takeovers. Conway said that in building the Money Clouds platform, he took those concerns to heart – suggesting that companies (such as that came before and struggled a bit in that regard “have made the tools at my disposal better.”

Money Clouds has implemented a way for users to sign into their bank in such a way that the platform never sees the information because it comes straight through that third party, and provides identity verification proof.

Conway tells Webster that he is exploring partnering with financial institutions to distribute the Money Clouds app, citing credit unions and smaller community banks as ideal targets. With Money Clouds, Conway believes that those FIs could gain access to a wider range of customers — and have access to valuable information on what bank customers are saving for. (Conway notes, for example, that over 25 percent of the accounts currently created for Money Clouds are for vacation savings.) Knowing that information is “powerful,” and would create opportunities for a credit union to provide information to consumers related to helpful products.

Not to mention a business model – something that Webster notes, and Conway agrees – could become quite lucrative. Conway suggested that Money Clouds’ roadmap could make that possible in a rather novel way, with at least one idea that has a patent pending.

“We're really excited about that aspect of our business,” Conway emphasized. “We have a lot of investors that find it really innovative and really different.”

But Conway moves quickly back to the goal at hand “to get people to save money.” Once they do, he says, they're going to want to spend it, or contribute it, or do something with it. And that will be our next big focus: helping people get access to those opportunities. But getting them into a healthy savings habit that isn’t too complicated to enable is our first priority.”

At the moment, Money Clouds, the personal savings side of the platform, is completely free. Where the platform does charge is on two types of transactions: social contributions — which cost $0.25 per transaction — and “direct contributions” — wherein there’s no waiting for ACH delays on a contribution, at a fee of $0.99 per transaction.

In terms of monetizing Money Clouds, Conway again points to as a model.

“The reason why was acquired for a really healthy amount was because they were able to prove what each customer was worth — even if they weren't monetizing it yet,” he says. “At some point, I want to be able to do that, too. I want to be able to show what each customer is worth and then adjust our monetization model on what we know, rather than guessing.”

Money Cloud is currently entirely angel funded, and Conway says that he has “one small portion” of his bridge round left to raise — so that once the company is ready for its Series A round, it can maximize its valuation and “grow…to where I believe it can go,” remarks Conway.

“I cannot wait to go from surviving to thriving,” he tells Webster. “And I can't wait to go from a startup to a small business.”

In concluding his conversation with Webster, Conway reiterates that his first goal with Money Clouds is to help people. He has no intention or desire to “disappear into” the world of finance and banking.

Instead, says Conway: “I want to play the game, but I want to play it differently.”




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