I now know I’ll be able to retire when I’m 87.
I know this because I signed up for a new app called Wela that uses account aggregation and artificial intelligence to analyze money coming in and going out of my accounts. It lets me know when my daily spending is out of line, and it tells me how I'm doing relative to my stated financial goals.
Wela launched earlier this month, making it one of the newer firms in the busy business of helping people save.
Also, another fairly new entrant is Self Lender, which gives people a way to improve their credit score, by taking out a small loan and paying it back to themselves.
While each firm in the space has its own particular bent, my sense is that all of these options can be useful — and make for successful businesses — if the user truly takes the given advice to heart.
Lending to yourself
When James Garvey sold his first company, an email service provider called Objective Loyalties, and got married, he and his wife took time off to travel. They came home to a $300 credit card bill that had gone unpaid for a couple of months.
"My credit score was really tarnished," Garvey said. "That's when I started looking into how do people rebuild credit? The solutions out there are really expensive, a lot of them are predatory, and I wanted a simple way so that I could help my future self build credit and save money."
For instance, secured credit cards require a large upfront deposit and if you want your deposit back, you have to close down the account, he said.
Garvey, a software engineer by training, decided to take on this issue. He settled on the idea of a forced savings plan that builds credit.
After meeting with 60 banks that were squeamish about working with a fintech startup, Self Lender found a bank partner in Austin Capital Bank, an 11-year-old Texas bank with $102 million in assets.
Self Lender lends people $550 that they have to keep in a certificate of deposit for 12 months. The interest rate on the CD is 0.10%. The interest rate on the loan is about 10.57%.
Essentially, customers are paying about $4 a month to help them save $550 and improve their credit scores. Users are seeing their credit score rise an average of 40 points over the course of the year, Garvey said. By comparison, Garvey notes, some low-balance checking accounts cost $10 or more a month.
Self Lender and its bank split the loan revenue and origination fee. Garvey expects Self Lender to be profitable in the first quarter of 2018.
The company launched in pilot mode this time last year and quickly signed up 200 customers. Around the time it was named one of American Banker’s 20 Fintech Companies to Watch in 2017, it had about 1,000 customers. Today it has 20,000 customers and it is opening 150 accounts a day.
It has a net promoter score of 72, which is extremely high in the financial services industry. By comparison, the average net promoter score for banks was 32, according to an October 2016 release by Temkin Group.
But a product like this takes patience on the user’s part.
"It's a totally different mindset," Garvey agrees. "The product by design has a lot of discipline. There's a start date, a stop date, there's 12 equal payments. With a credit card you never really know how much you're going to spend and it can be really easy to get out of control."
Some users are new to the country, some are 18 and can't get a credit card because of the CARD Act. Others are recently divorced and re-establishing their individual credit. About 90% sign up through a smartphone.
No shortage of help
The idea of an app that helps people manage their money, of course, is not new.
Mint, now 11 years old, was one of the first to show people their entire financial picture through account aggregation. Moven and Simple came along with graphics that showed people where they were spending their money and what was “safe to spend” relative to the bills that had to be paid each month.
Banks have also upped their offerings. KeyBank offers financial wellness scores, USAA offers an app designed to help millennials save, Ally Bank offers an app designed to help people spend less, TD Bank in Canada white-labels technology from Moven, Bank of America and Citi include budgeting features in their apps, and Wells Fargo recently launched a stand-alone savings app and is creating an app for predictive budgeting.
HSBC recently launched its Nudge application, which uses “nudge theory” — a concept in behavioral science that uses positive reinforcement and indirect suggestions to try to achieve nonforced compliance. The idea for the app came from Raman Bhatia, head of digital UK at HSBC, whose wife used to leave Post-It notes on the fridge, nudging him not to eat the rest of the desserts.
Other fintech startups in the field include wallet.ai, Chime, Dyme, Digit and Qapital.
A Weight Watchers for budgeting, financial health
Matt Reiner was working for a wealth management company that focused on high-net-worth individuals when he and his colleagues saw a need for financial advice for the mass market.
“We kept going upstream, going after bigger and bigger clients every couple of years, and our friends kept coming to us asking us for advice and we weren’t able to serve them,” he said. They saw young parents aged 32 to 45 as especially neglected. Often they want to buy a house, save for a kid’s college education, and save for retirement at the same time.
“They have a lot more issues, but they don’t have the type of money or the time needed to get advice from traditional financial advisers,” Reiner said.
That same group often doesn’t understand how today’s actions affect their goals.
Wela sets a daily spending limit that’s akin to a “Weight Watchers for budgeting,” Reiner said.
“We want them to understand what that coffee means or what that next pair of shoes means for their retirement,” Reiner said. “We’re talking to people that are young about something that’s nearly a lifetime away. We want to bring it all back into today.”
Wela uses machine learning to predict how much people will spend seven days in advance. This, along with knowledge of their recurring transactions for that upcoming week, allows Wela to help guide them on their discretionary spending.
A chatbot called Benjamin offers mini pep talks, like “Great job saving toward your goals last week. Keep it up.” Wela also sends articles with headlines like “10 Exercises You Can Do To Reduce Money-Related Stress.”
Wela, which has 14,000 users, is also working on an AI-powered chatbot that will use natural language processing to let users have a real-time conversation about their financial picture.
The goal is to to keep the platform and chatbot free, so the company makes money through the investment management services it offers to those who want human advice (the company has three investment advisers on staff that manage $120 million currently); it charges an assets under management fee for that. It also provides 401(k)s to small businesses through its platform and charges for that.
The technology does a lot of work for the financial advisers on the back end, such as data gathering, analysis and some recommendations.
“That allows advisers to have more effective and fruitful conversations with their clients, but they’re also shorter conversations, so they can have more relationships and more households under management,” Reiner said.
A traditional adviser might have 100 to 200 families. Wela’s advisers aim to manage between 1,000 and 2,000.
Can you really give individual attention if you’re advising 2,000 households?
Reiner suggests that in the typical relationship curve with investment advisory clients, there’s a lot of work and time at the beginning, then it tails off because the client goes with philosophy of the adviser.
“The reason clients leave advisers is they don’t get communicated with enough,” he said. “They don’t understand, why am I in this position? They’re not giving me advice. Our technology can help keep clients satisfied and on the right path.”
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