New Lottery-Linked Savings Accounts Are Fun … And Growing

A New York-based startup is shaking up the stodgy world of banking by offering customers a chance to win prizes as an incentive to save money. Adam Moelis, co-founder and CEO of Yotta Savings, told PYMNTS that the idea of rewarding savers makes sense, given how much people love to play the lottery but struggle to sock money away.

“We’re basically stealing the psychology that drives people to play the lottery,” Moelis said. “Instead of getting a tiny amount of interest like you would from a traditional savings account, you get the chance to win more substantial prizes.”

Depositors get two free tickets to Yotta’s weekly sweepstakes-style drawings for every $50 they have on deposit. Winners get anywhere from $10 to $10 million, making the incentive to save clear.

But unlike lotteries where you buy tickets – which Moelis calls the worst bet you can make – Yotta’s savings accounts are FDIC-insured through its partner Evolve Bank & Trust.

A Popular Format in Britain

Moelis said Yotta’s random rewards format is modeled after a wide practice in the United Kingdom, where roughly a third of bank accounts offer prizes.

“We’re basically trying to provide instant gratification for a behavior that typically doesn’t have it,” he said. “It’s just embedded in our psychology – the chance to win something much more substantial. It makes saving much more instantly gratifying.”

Moelis, a Wharton School grad, said that when given a choice, people overwhelmingly prefer having a chance to win something big versus having a guaranteed lock on interest that’s currently as low as 0.01 percent.

$3.3M in Seed Funding, $40M in Deposits

Yotta recently raised $3.3 million in a seed round that included Slow Ventures, FundersClub, TwentyTwo VC and other backers. Moelis said the firm plans to use the money to increase marketing and to hire engineers and development people to test and explore new channels.

Yotta has also been able to attract 40,000 new customers with more than $40 million in deposits in less than four months, largely by word of mouth.

But while that’s an impressive start, Moelis said there’s no reason a prize-driven savings model can’t eventually command a similar market share to what the concept enjoys in the United Kingdom – only in a country with five times as many people.

“I see no reason why this can’t be, on a population-equivalent basis, just as big as the U.K.,” he said. “There are hundreds of billions of dollars that could flow to something like this.”

New Competitors Seem Likely

While revolutionary compared to passbook-savings accounts, Yotta’s basic business model is actually quite simple, meaning competitors could soon emerge. “We expect other banks to try and do something similar,” Moelis predicted.

But he thinks Yotta’s product experience, focus on gamification and embedded social network give it an advantage over rivals. “I think it would be tough to create as fun of an experience as we’ve created,” he said.

Growth Plans

Moelis said the functionality of his three-month-old firm “is still super-limited,” but that Yotta is working to add features like direct deposit and joint accounts.

Longer-term, the company is exploring other ways to bring value to customers, such as layering on financial services, and adding credit-building features or other tools to help people save money on things like unused subscriptions.

And while Yotta currently only partners with Evolve Bank & Trust, Moelis said “there’s no reason why we couldn’t partner with a network of banks” that want to boost their savings business.