In a rather morbid way, this week we look into the new opportunities taken by FinTechs in the area of savings. It seems counter-intuitive to enter such as market at such a time, yet time will be the best judge.
"Precautionary saving has come to stay, at least until the uncertainties surrounding the Coronavirus dissipate [...] we will probably have to wait some time before European households are as spendthrift as [in 2019]."
Javier García Arenas, Senior Economist, CaixaBank
European savings have shot up during the pandemic. When times are uncertain then people tend to spend less and build up financial reserves. According to research from CaixaBank, the savings rate for a sample of European countries is anywhere between 7% and 19%, depending on their geographic location, and bank deposits rose dramatically between March and April 2020. Since then we are not so sure it looks that good.
With a boom comes opportunity, and a variety of new propositions have launched, looking to address key customer savings needs in more innovative ways than incumbent providers. Examples are Monzo, Plum, Goin, Ally Bank, Chime, Moka, Bunq, Dozens, Starling, Chip, Yolt and digit. Rather than rolling out another version of the same savings account with an interest rate variation, these challengers offer products that approach saving from a different angle and encourage people to change their attitudes and approaches to saving, rather than focus on profitability. More user-designed functionality and automation make customers' lives easier, and that is where the value-add is generally for companies today.
One example is Goin. Savings accounts are widely used as a separation tool to keep savings away from day-to-day spending. Users can create a subsection or ring-fenced area within their main account that can be used for saving. This is a convenient solution for customers looking specifically to isolate their savings funds from their spending, without having to go through the often-lengthy process of opening a separate account to start saving. Goin offers an automated process to move a set amount of money from one account to another on a regular basis. Some tools include “pay yourself first”, “Round Ups” and “Safe-to-save” features.
Savings can only continue if there is sufficient economic activity. With lockdowns and other restrictive measures in force in most countries, many businesses and households are using up their savings. So it will be interesting to see how long this savings "boom" will last, and how providers in this FinTech segment will consolidate once the demand drops.