Late last year, just in time for Christmas shopping, Rachel Rhoads got a nice surprise. One of her secret savings accounts had grown to $900 behind her back.
Rhoads, a 37-year-old Los Angeles-based sales director for a jewellery line, has an account with Digit, a financial technology company with an algorithm that tracks users’ income and spending patterns. It painlessly spirits small amounts of money out of checking and into a savings account every two or three days.
“I just thought it was such a good idea, to set it and forget it,” said Rhoads, who says she is “like a squirrel” in her approach to saving. Digit sends texts with balance updates, which she largely ignores because “I like to pretend the saving is not happening.”
Getting consumers comfortable with putting their finances on customised autopilot, starting with a simple, no-fee-and no-interest-savings account, is the San Francisco startup’s mission. In two years, its users have saved more than $250 million this way, according to its 31-year-old founder and chief executive officer, Ethan Bloch. When the product moved out of pilot mode, in February 2015, users were saving $4 million a month; now that’s $30 million a month. Digit won’t disclose the size of its user base but says it has tripled from about a year ago.
Digit had a savings bot before bots were cool, or at least before the hype in the financial technology world reached a fever pitch. Its product is simple. An algorithm looks at a user’s average, high, and low checking account balance, when the user is paid, and whether the pay cycle is smooth or choppy. Then, after looking for bills due in the next week or two and analysing recent spending, it moves an amount it judges the customer won’t miss to a savings account. The company makes money from the interest rate it gets on account assets.
Digit announced that it will be the first savings bot on Facebook Messenger’s platform, so users can just use Facebook to communicate with it. When Digit moved out of its pilot phase, it communicated only by text, a natural language for many users, since 17 percent of them are aged 21 to 24, and 44 percent are from 25 to 34 years old. Rhoads said they’re “cute texts” with “some personality” and “not annoying at all.” After text messaging came iOS and Android apps for users.
The company is now working on what Bloch called “the first artificial intelligence-powered financial goal program.” Users would set a date and amount (and pick an emoji, of course), and Digit’s algorithm would make a series of projections based on balances to determine the optimal amount needed to start saving toward that goal-or point out that the goal is unrealistic.
Also on the product horizon is having Digit’s algorithm figure out how to “move every dollar where it should go, at the right time, to minimise fees (on student loans, credit card accounts, etc.) and maximise gain,” Bloch said.
There are hitches. Since Digit isn’t a bank, it can’t pay interest, and it will be competing in an environment of rising rates. Bloch said interest rates “are not a huge deal” for his customers, because they regularly withdraw money and tend to save small sums.
Another hurdle is that traditional bank technology can make it hard to connect accounts. “Banks have not made it easy for customers to get their data,” Bloch said.