Using algorithmic analysis of users’ transactions, Digit can identify expenditure patterns and put some money aside in a savings wallet for its customers every week.
Savings is one of the key areas on which a number of startups in the financial technology space are now focusing hard. People attending the DEMO Fall event in San Jose, California, in November heard Adam Nash, President and CEO of Wealthfront touting the automated investment platform designed for the Millennial Generation which purports to free customers from the anxiety of organising their own savings and investments.
In similar vein, Californian startup Earnest offers loans at reduced rates, freeing its clients from the ‘credit score’ ratings usually needed in order to borrow money in the United States. Instead of using standard credit scores, Earnest takes into account a range of personal metrics, such as the client’s education, current expenditure patterns and employment history, thus taking a more forward-looking view of the person’s financial situation.
Meanwhile San Francisco-based Digit focuses entirely on savings. The startup’s approach is to use ‘smart’ automation to help its customers make savings, and the company sells itself as complementary to traditional banking services. Digit customers first need to link their bank account to the Digit app so that the Digit algorithm can analyse their income and spending habits. Then Digit will work out how much each user can reasonably afford to put aside and every two or three days will transfer a sum of money – usually between $5 and $50 – to his/her Digit savings wallet. Digit claims that it will never transfer more than a customer can afford and there is no need to worry about overdrawing your current account: Digit provides a no-overdraft guarantee.
Digit then essentially works like an electronic ‘wallet’. Savings are placed in a Digit account, and users can withdraw funds any time they wish. A simple SMS command asking for a transfer to a bank account will suffice. The transfer will take just one business day, you can transfer as much as you like and there are no charges.
Digit, which has just raised $2.5 million in seed funding, is thus reaching out to people who either do not have sufficient time to manage their savings closely, or have difficulty making savings at all. During the pilot programme, which kicked off in August 2014, Digit managed to put aside a total of $600,000 dollars for its users, averaging around 5.5% of their monthly salaries.