U.S. Bancorp tool helps protect overambitious savers

U.S. Bancorp on Wednesday rolled out an automated savings service that lets consumers save more and ensures that they don't get blindsided by a large, unexpected expense.

The new offering, Pay Yourself First, was created by Personetics, a software company the $554 billion-asset U.S. Bancorp already works with to provide personalized insights to customers through its mobile app. Algorithms calculate amounts customers can safely stash away while still being able to pay all their bills and cope with financial emergencies.

U.S. Bancorp, in Minneapolis, is the latest in a line of banks and fintechs offering tools that aim to help U.S. consumers address a growing problem: Most people don’t have enough savings to meet an emergency.

The Consumer Financial Protection Bureau released a report in September that found that half of Americans think they need $10,000 or more in savings for an emergency, while more than half report that their household has $3,000 or less in their savings and checking accounts combined. Savings tools can also help cement relationships with customers and make banks and fintechs harder for consumers to leave.

“The financial services industry, in particular banks, are still in a state of distrust with consumers,” said Damian Warren, head of consumer digital channels experience at U.S. Bancorp's banking unit. “We are looking to solutions like this to help shift that trajectory and place us in a place of trust with customers and ultimately build lifelong relationships with them as well, to where if we can continue to provide that advice and guidance that helps them manage their financial life, they will return to us and maintain a deeper relationship over time with all of our solutions.”

Automated savings trending

Bank of America was one of the first financial services firms to offer a form of automated savings; it launched its “Keep the Change” program in 2005. That program automatically rounds up the price of every debit card purchase to the next whole dollar value and transfers the difference from checking to savings.

The challenger bank Chime offers this, too. However, it could take quite a bit of time for small amounts of change to add up to a meaningful pot of money.

The fintech Digit pioneered algorithm-based automated savings in 2015. Digit’s program analyzes users’ cash flow and spending and periodically determines how much they can afford to save; it automatically moves that amount from their checking account to their Digit account.

Fifth Third Bancorp in Cincinnati bought the fintech Dobot in 2018. The $205 billion-asset Fifth Third launched the Dobot automated savings app to its customers in early 2019. Like Digit, the app analyzes users’ financial activity and withdraws small amounts that its algorithm thinks users won’t miss. It moves that money into a savings account separate from the one consumers use for daily spending.

The fintech Qapital also offers automated savings. It lets users round up to the nearest dollar and save the difference. It also lets them set up savings goals and then apply “if-then” rules to fund those goals. For instance, if a user buys a coffee at Starbucks, then $20 is transferred to savings.

The financial health app provider Even added an automated savings tool to its offerings in January 2020. It lets users set aside funds for up to three savings goals and lets them allot as much as 10% of their paycheck to each goal. The funds are automatically transferred to the account corresponding to each goal every pay period.

The next month, Ally Financial unveiled an automated savings tool that presents customers with 10 pre-populated names of savings “buckets” — such as “wedding”— in which they can save money. Customers can set aside a predetermined amount from each paycheck, such as $50, to be automatically transferred into savings in those buckets. Ally also has a “surprise savings booster” that analyzes the customer’s cash flow, identifies a safe-to-save amount, and automatically sweeps that into savings.

In September, Wealthfront released a feature called Autopilot that provides automated saving and investing. It lets customers establish how much cash they need to keep on hand and set savings and investment priorities. Wealthfront monitors the account daily, and when the balance exceeds the prescribed amount Autopilot automatically deposits the overage into the chosen accounts.

U.S. Bancorp's take

U.S. Bancorp's new Pay Yourself First is different from these other savings tools in a couple of ways, according to Jody Bhagat, CEO of Personetics.

First of all, other automated savings apps are capable of saving only small dollar amounts, he said. Customers can use Pay Yourself First to save hundreds of dollars from each paycheck.

Secondly, this program lets customers define a dollar amount or percentage of income as a desired target to save or invest. Then as each paycheck comes in, the algorithm looks at the long-term and short-term cash-flow implications for the customer and decides whether it’s safe to move the desired amount over to savings. It may move some or none of it.

In other words, Pay Yourself First will not just help people save, but save them from themselves: If there’s a big bill coming up, the customer will be prevented from moving that usual $200 over to savings. The software is looking ahead for consumers and protecting them from saving when they shouldn't, as well as helping them save in general.

“This solution moves the customer into a situation where they inherently become more confident in the actions that they're taking,” Warren said. “They now know that they can save and meet their obligations. And we feel that if we play a more proactive role with customers around driving their financial confidence forward, they will return that to us in the form of lifelong relationships.”