The Gamification Of Savings

Getting millennials to embrace “traditional” financial services isn’t easy, particularly as a new crop of FinTech innovators has met more than halfway with apps that offer traditional financial services and transacting in an environment that they are most familiar with – digital and not physical banking.

As banks rush to keep pace with the preferences of these “digital natives,” there’s been increased attention toward services that offer seamless, simple and digital ways for them to get savvier with their money. That’s the ambition of Acorns, which not long ago raised $30 million and included PayPal as its lead investor.

Acorns is designed to help young investors save by gamifying savings, more or less. Acorn customers are able to “round up” leftover “change” from their debit account purchases and place it into a brokerage account that invests in a group of exchange-traded funds. Acorns at the moment has 850,000 active investor accounts, and so far has raised $62 million from its strategic partners — all of which has come since the app launched a short 20 months ago.

But Acorns isn’t the first to have the “round-up” investing philosophy – nor the first to have experimented with the gamification of investing and financial services. PYMNTS spoke with Mark Kilpatrick, CMO of Urban FT, to get his sense for how the market for these services has evolved, why there’s been such a surge in their popularity and what he thinks might be next for the market.

Below is a Q&A session between PYMNTS and Kilpatrick.

PYMNTS: Bank of America introduced its ‘Keep the Change’ program over a decade ago. Why haven’t more – or really all — banks adopted an initiative like this?

Kilpatrick: In fact, many larger financial institutions have instituted some form of automated savings, even if the solution isn’t specifically dependent on spending. Wells Fargo, for example, has its Way2Save program, which transfers $1 to savings every time you spend with your debit card. For smaller financial institutions, however, offering such programs can be challenging, involving identifying and implementing the technology, validating the concept, and, of course, marketing. With so much on the plate of smaller FIs, automated savings falls to the bottom of the list. The solution is sharing technology; that is, working with a technology provider that can seamlessly facilitate a process that encourages consumers to save through back-end automation and makes it painless by integrating it into everyday activities.

PYMNTS: Acorns and similar apps provide a different service, rounding up purchases and investing that difference in an ETF.  Why have these types of apps seen such a sudden surge in popularity?

Kilpatrick: You know, the concept and functionality of these apps really aren’t all that different; the difference is where the consumer’s funds are being held — in a typical savings account or in an investment account. These kinds of apps — whether for saving or investing — engage millennials because they use apps for everything. Millennials know they “should” save and invest, but they don’t want to put time or energy into these basically boring activities. Apps are familiar, simple to use, private (Mom and Dad aren’t looking over their shoulder), and make saving and investing a nearly mindless process.

PYMNTS: The target demographic for this type of investing app is millennial.  What does this say about how that group views saving and investing their money?

Kilpatrick: It says that if you’re a digital native, like most millennials, you expect to do everything digitally—banking, paying bills, investing, getting purchase recommendations, and even conducting your social life. During the formative years of baby boomers and Gen X, these digital tools and resources weren’t available, and it’s a challenge to change their established channels of saving and investing. But, I’d like to think that if these tools had been available, the baby boomer and Gen X generations would have been very receptive.

PYMNTS: Aside from the standard risks involved in any type of investment, are there any specific risks that come along with the new focus on mobile-only investment apps?

Kilpatrick: Mobile security around any transfer of value is a work in progress and will always remain a work in progress. The No. 1 risk, as I see it, however, isn’t technological, it’s human. Do consumers fully understand what they’re getting into (particularly the risks they undertake in their investments)? Are consumers monitoring their saving or investment accounts to identify fraud or misuse in the event it happens? Another risk is one of false financial security: Round-up features won’t drive really significant saving/investment over the years. Automated apps are a great starting point for investing and savings, but millennials will need [to do] more to secure their financial futures.

PYMNTS: We’ve seen programs that transfer money from checking to savings accounts and apps that transfer money into investment accounts. What’s next for these types of initiatives?

Kilpatrick: A greater focus and ubiquity around investing from apps, technology providers (B2B) and institutions. Depending on the traction and success of applications like Acorns, I think you’ll see a lot players in the industry trying to get some skin in the game by providing their customers with similar solutions for investing and saving. While Bank of America has had its ‘Keep the Change’ initiative for nearly a decade, the program lacks the value-add of investing that money. Ultimately, these financial services providers will need to determine how to integrate saving and investing into a more fluid ecosystem. The next company to do that will really be on the cutting edge of saving and investments.