Apps Drive a Revolution in Digital Banking

Given the massive rise in mobile and tablet use, the role of finance related apps is changing. Whilst most of the major banks in Australia offer some basic functionality, its mostly a version of internet banking, or payments. Yet there are examples of apps which are much more aligned to specific customer groups, and frankly much more sophisticated in terms of function and form. Banks need to take their apps strategy up to the next wave of innovation if they are to build sustaining relationship with digital banking users. We think the future is based on form and function, and needs to be tailored to specific customer segments and their specific needs.

To illustrate this, today we look at a few of the apps out there available in the USA, and some of which which may be coming here. The examples are more to stimulate thought and illustrate the underlying thinking. We are not necessarily advocating these apps, but we think they illustrate digital disruption in play.

The first is Qapital  which says “is the everyday banking service that helps your money go further”. The Swedish startup launched its saving service in March to consumers save for big-ticket items and trips. American users can set up separate FDIC-insured Qapital-branded savings accounts into which they can automatically drop money from their existing bank accounts.

Save automatically using rules

Essentially, the app allows a user to set up rules to turn almost any activity into a savings trigger. These rules could include one that fines you when you indulge (e.g. each time you buy a cream cake), round up transactions and sent the odd cents to a savings account, or create a budget, and if you come in under, the balance is sent to savings.  They also add IFTTT (If This Then That) functionality. With this you can set up savings triggers to automatically put money toward savings goals every time you buy from a nominated store, Starbucks or walk another kilometer, or almost anything you want. They even can link it to a Twitter #tag, or a particular weather forecast. Essentially you set the rule, set and forget, and the savings accrue. “There are almost 200 IFTTT channels to choose from, with thousands of triggers and actions. Make your Qapital savings deposits trigger something fun, or turn a tedious chore into a chance to pay yourself for your trouble. Make your own recipe or check out some of our favorites”.

Going forward, Qapital have plans to partner with Intuit (which makes the finance software behind Quickbooks), which will expand Qapital’s dynamic IFTTT recipe features to users with accounts at over 20,000 smaller banks across the U.S. and by the end of the year, Qapital will release its own branded Visa debit card through the bank that backs all Qapital accounts, the Iowa-based Lincoln Savings Bank.

This is an example of “Gamification” – the application of game mechanics to non-gaming tasks. These mechanics may include leaderboards, points, badges, rankings, specific goals, and rewards (either real or imagined). The overarching concept behind gamification is that it provides someone incentive to do something they otherwise might not do. It turns work into a game, something boring into something fun. Some customers just love it – others will hate it!

Another app example is LevelMoney. The app can connect to a users bank and any other credit cards – they have more than 18,000 financial institutions – and users also input data such as income, bills, and how much you want to save each month. The app calculates a cash balance you can safely spend each day.

Its big on spending tracking an budgetting. It can also automate payments. Its like a personal finance assistant.

Another example is Digit. This app connects to your transaction account, and when there is sufficient money in the account transfers a small amount to a savings account, every few days. Its not like a regular monthly savings plans, it responds to whats happening in the account. When needed a user can request the savings back, and it will be returned in 24 hours. It guarantees never to over-draw your transaction account. Digits communicates with you mostly via text message.

Finally, there is Acorns, which is a financial service that allows users to invest money from a mobile phone.  Acorns Grow Inc. was founded in the United States of America in 2014. Now Acrons plans to commence beta testing in Australia in the third quarter of 2015 with the final Acorns product going live in February 2016.

Acorns helps users proactively invest. The app can round up each of your credit, debit or bank transactions to the nearest dollar, and invest the change into a choice of five diversified portfolios. Simply connect a credit card, debit card or a bank account, and tell Acrorns about yourself. You then select a portfolio based on your own investment goals and the amount of risk you’re comfortable taking. There are no account minimums, no commissions, and fractional investing so even small balances are fully invested. All this via your mobile phone which makes it easy to fund and track your investment account. Acorns is currently available for iOS 7 and 8 and android device running 4.1 and higher. Acorns will also be available via a Web application which will also be launched at the same time as the mobile device.

It worth noting that you can not opt out of any of the ETFs in Acorns’ portfolios, nor of the stocks or bonds of which the ETFs are comprised. You also do not have the option of choosing to invest in any other stocks, bonds, Bitcoin, or other securities through Acorns. There are however multiple ways to fund your Acorns account:

  • Lump Sums: You may add or withdraw money by entering any desired amount on the Deposit/Withdraw screen. There are no fees for depositing or withdrawing money.
  • Automatic Investments (Recurring Deposits): You may set up recurring deposits on a daily, weekly, or monthly basis. Select the amount of money you wish to invest regularly, and then choose the desired time period.
  • Round-ups: You may link your spending bank accounts (credit or debit card) and then round up the virtual change from every transaction. These round-ups can then be manually or automatically moved into your Acorns account.

This can take 5-7 business days to process before the funds become available in your nominated bank account. It can take 1-3 business days for funds transferred to your Acorns account to become available to invest. These funds will be shown as “pending” during this time period. There is currently a daily deposit limit of $10,000. You can withdraw any amount from your balance at any time. Acorns Grow Australia Fund is a registered managed investment scheme (MIS) and regulated under the Australian Securities & Investment Commission (ASIC).

You can monitor your spending through the app and website, allowing you to spot investment opportunities. To access this, you‘ll need to provide your online banking login information. However, this information is not stored and is not viewable by Acorns—it’s simply used to import your spending activity. This will not enable money to be transferred from your bank account.

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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