Two years ago Archie Ravishankar and his partners began to develop digital banking services for players in the gig economy, and they discovered that it's a group — including entrepreneurs and workers — with an independent streak.
What do the demands of startup bosses, drivers for ride-sharing services, models and consultants have in common? All are involved in nontraditional work, value mobility and need help with uneven cash flows that sometimes concern normal banks.
“People could work anywhere in the world ... and they were more open to collaborative thinking,” said Ravishankar, the CEO of Cogni, which is still several months away from its launch. “We started digging a lot deeper and found that people get used to it as a lifestyle. We had been under the impression that people chose to do that because they were not able to get a full-time job.”
In addition to cashback opportunities and a multicurrency wallet, users will be offered customized savings buckets and personal finance management tools powered by data analytics.
Yet Cogni will have to work hard to convince customers that such tools provide an added value to their day-to-day financial wellness, said a digital banking expert who is not involved with the company.
While consumers say they want financial insights, they do not often act on those insights nor choose a bank based on personal financial management tools, said Ron Shevlin, director of research at Cornerstone Advisors.
“They don’t use them, and it doesn’t make much difference in where they choose to bank,” Shevlin said. “Things like branch location are much more important.”
PFM applications that perform better than others are ones that offer not just information but also suggest action, Shevlin said. For example, Digit, maker of one of the first apps to help people save by automatically sweeping modest amounts of money from checking into savings, figures out how users can safely put away money on a weekly or monthly basis.
The success of Cogni’s PFM tools for users that have irregular incomes will depend on the kinds of actions the tools advise users to take to improve their financial standing.
Cogni’s target customers do not fit into the typical bank model of a customer. Their cash flows are unpredictable, making it harder for them to pay bills on time and for lenders to peg their creditworthiness.
“With the gig economy worker, you’re not taking a normal salary,” Shevlin said. “You need to have the banking capacity to manage the ups and downs.”
Entrepreneurs in particular are looking for simpler ways to do banking in a financial system where retail and commercial banking are kept separate.
“Whether their business is large or small, it’s hard to have an understanding of your entire financial picture,” said Tiffani Montez, retail banking senior analyst at Aite Group. “Having insights across your personal and business banking relationship has always been a challenge.”
Cogni’s cashback options will include up to 12% cash back on everyday purchases as well as up to 40% on hotel costs.
Its digital wallet will allow customers to swap and hold multiple currencies and exchange at spot rates.
These extra features are valuable in a world where customers hold numerous accounts. According to the Federal Reserve Board’s triennial Survey of Consumer Finances, the amount of money in consumers checking accounts doubled between 2015 and 2016.
“If an entrepreneur needs a multicurrency account, they could easily move money to Cogni’s account,” Shevlin said. “If they find that 12% cash back at Starbucks is a better option than what their primary bank offers, they can move money over without getting rid of their primary checking.”
While this environment makes Cogni an attractive accessory to these consumers, the multiple accounts that users hold will make it more difficult for Cogni and other bank’s PFM tools to accurately assess a consumer’s finances.
“These tools are powered by data analytics,” Shevlin said. “You can’t do that unless you have a broad picture of all their accounts.”
Cogni's services will be based on a proprietary algorithm that ties together four fundamental data points, said Joseph Loren, Cogni’s head of product. “Customer demographic, transaction data, geolocation and what you type in for each savings bucket.”
If Cogni notices that a customer consistently spends money at the same restaurant for lunch every day, it may recommend other restaurants in the area where he or she can get more cash back.
Cogni is three to six months away from launching. Currently, customers can download its mobile application and be put on a waiting list that establishes an order for letting people onto Cogni and offers rewards for some of the first users.
During that time, Cogni’s team will continue to put out surveys and test the product’s prototypes with users in New York. The company has six more core features that it plans to release.
“We want them to be things that stick,” Loren said. “When you see excitement out of people, that’s when you can take that next step.”
The company has offices in New York and Los Angeles, and Loren and Rashivankar plan on planting a tech team in Austin, Texas.
“Right now our team is about 12 and growing rapidly,” Loren said.
Updated July 6, 2018 at 4:29PM: An earlier version of this story should have noted a range of up to 12% cash back on everyday purchases and up to 40% on hotel costs, instead of describing them as flat figures.