How fintech is helping UK savers

It’s that time of year again when we make resolutions and try to stick to them. New year, new you, right? For some that means fitness plans and home improvements; for others, thoughts turn to making this year the one where they finally get serious about saving, writes Amy Gavin, market researcher at 11:FS’ Research & Benchmarking team.

If you want to form a positive savings habit that really sticks, you’re probably looking for a more creative solution than freezing your leftovers and cutting back on coffee (although spending a little less is never a bad idea). There are now digital savings tools available that offer a fresh approach to saving: helping you reach your goals in a more enjoyable and sustainable way.

Many of us have a poor relationship with saving money. In fact, 46% (12.6 million) of UK households have either no savings at all or less than £1,500 in savings, according to The Money Charity. We all know that we should be saving for the future where we can, but we’re less clear about how to save or exactly what we’re saving for.

As with many resolutions, it can be tough to find the motivation to start and easy to be put off by the assumption that a major lifestyle change is required to make saving worthwhile.

Many of us have a poor relationship with saving money.

Another factor inhibiting our collective ability to save is that for too long the market has been dominated by uninspiring offerings that fail to meet savers’ primary needs. Low interest rates and a lack of product differentiation have left many consumers feeling apathetic about saving and struggling to set money aside.

This is precisely why a wave of fintech firms are developing new tools – to change attitudes towards saving and provide you with the motivation to reach your personal savings goals, whatever they may be.

New product innovation

An increasing willingness amongst consumers to consider newer providers for their personal finance needs is kicking off diversification in the market. Digital challengers, including Monzo and Starling, have been steadily taking current account customers away from incumbent banks for a few years, according to recent CASS figures, and the shift is expected to continue.

This trend is also starting to present itself in the savings market, where the big banks’ overall market share of savings by value and by new business is falling.

Broadly, new savings propositions can be grouped under three key themes:

1. Automation: offering a method to save with minimal customer input (e.g. algorithm-based services from Plum and Chip, as well as round-ups offered by Monzo, Bunq and Starling).

A common problem for many people is that they forget to save or don’t put aside money at a logical time, such as payday. That said, it can be difficult to calculate how much is affordable to save upfront, particularly for people with uncertain or irregular incomings and outgoings.

Propositions such as Plum and Chip enable you to save without having to consciously engage with the subject on a regular basis. Users can create automatic rules that instruct the app to set aside small amounts of money on their behalf. This removes the need to repeatedly make the sensible (and often painful) decision to transfer funds into a savings pot for the future, at the expense of rewarding yourself today.

Another increasingly popular automation-based approach is round-ups, whereby purchases are rounded up to the nearest pound and the change is automatically diverted into a separate savings pot. Starling and Revolut are just two examples of digital challengers giving users the option to activate this feature for everyday transactions. In fact, it has proven such a hit with customers that many of the big banks, including Halifax and Lloyds, now offer their own equivalent ‘Save the Change’ feature.

Bunq, which launched in the UK last year, has an in-app ‘Auto Save’ option with configurable settings including the ability to save from multiple accounts and adjust the default rounding multiple (i.e. the next £1, £2 or £5). This allows users to adjust their behaviour depending on their personal goals and capacity to save.

Using round-ups alone is unlikely to generate a substantial savings fund and doesn’t do much to help people reach more ambitious financial targets. However, automated round-ups can be used in conjunction with other features, such as goals and pots, to drive more effective savings behaviour and boost the amount of money set aside.

2. Goals and Pots: a subsection or ring-fenced area within a customer’s main account that separates savings from spending money (e.g. Starling’s Goals, N26’s Spaces, Revolut’s Vaults, and functionality in the likes of Dozens and Liv).

What do you actually want to achieve by saving? Identifying a goal to work towards, however ambitious, is proven to be more effective in motivating you to save than if you’re just setting aside money for a generic ‘rainy day’.

Monzo and N26, amongst others, offer the option for customers to set up multiple pots within their main account which can be used for saving. This conveniently allows you to manage your money all in one place whilst keeping savings separate from day-to-day spending to help you resist temptation.

To bring saving to life, pots can be personalised to reflect specific savings goals. Starling users can add a picture to their goal and set up a target amount to work towards, for example. Chip goes one step further by recommending a date by which the goal can feasibly be achieved, calculated based on the user’s AI-powered automatic saving habits.

Monzo enables customers to open interest or non-interest bearing pots depending on how much they want to deposit. Pots can also be locked, meaning that access to the money is restricted until a specified date in the future. This adds a layer of positive friction to drive more effective savings behaviour as it prevents users from withdrawing and spending money that’s been set aside for a specific savings goal.

To further boost the effectiveness of pots, providers including Dozens and Monzo offer customers the opportunity to set up personalised savings rules via automation platform IFTTT (If This Then That). Users can build their own automations called Applets, whereby one action triggers another, and create rules which connect digital banking apps with other everyday apps such as FitBit and Uber. For example, a rule could transfer £5 to a Monzo savings pot every time you hit your FitBit step goal for the day. Or you could set up the ‘Uber savings tax rule’, which triggers a transfer into a Dozens savings account every time you take an Uber.

The use of gamification in saving apps, whereby engaging and participatory elements are introduced to drive a change in behaviour, is helping to reframe saving as an aspirational activity rather than a chore.

3. Marketplaces: giving customers access to a wider choice of products from a more varied set of providers (e.g.Monzo, Raisin, Starling and Yolt).

Another option for accessing alternative savings products is via digital marketplaces, which tend to offer a wider choice of products from providers that users may not have previously considered.

Raisin, which recently saw its most successful quarter to date since its launch in 2018, is a fintech savings marketplace that enables customers to open accounts with providers from across Europe. It has established partnerships with a range of UK challenger banks and European banks to offer competitive fixed-term and notice savings products through its online platform.

Monzo has created an in-app savings marketplace that offers customers a number of easy-access and fixed products from different providers, including fast-growing digital bank OakNorth. This proposition meets demand for ease and convenience, as all products are accessible digitally via the Monzo app, which enables you to manage your money all in one place.

That said, the practical accessibility of the marketplace model can come at the cost of receiving less competitive interest rates. OakNorth rates on personal savings products, for example, are higher if you open an account with them directly rather than going via Monzo.

Actively setting aside money for tomorrow that could be spent today takes willpower.

What comes next?

The competitor landscape will continue to evolve and diversify as alternative providers gain traction with customers. The choice of savings products available in the market is growing at pace and we can expect to see new challenger propositions become increasingly popular with customers as demand for digital-first and needs-based solutions grows rapidly.

The ability of challengers to successfully grow their customer base will depend on the willingness of savers to trust new brands to meet their financial needs. This trust factor is likely to increase as newer entrants become more established and prove the value of their offerings versus incumbent providers.

It will be interesting to monitor their progress and development, as well as observing how the incumbent banks respond to the ongoing evolution of the UK savings market.

Ultimately, whether these services are provided by a new entrant, or an incumbent, the real winner here will be the consumer. Actively setting aside money for tomorrow that could be spent today takes willpower and a certain amount of sacrifice. But with a range of options available that can help automate positive habits and overcome the temptation to spend, consumers can establish an efficient approach to saving that really works.

By Amy Gavin, market researcher at 11:FS’ Research & Benchmarking team