At the vast majority of banks, personalized, goals-based savings accounts are not on their menu of available products.
They should be.
Back when there were more passbooks than PCs, the idea of naming a savings account was not something that banks, or most consumers, contemplated. Savings accounts were — and still are — anonymous monoliths with about as much personalization as a Model T.
There are exceptions, of course: banks like Ally Financial, Capital One Financial Corp., and Goldman Sachs Group let customers create multiple, no-fee, named savings accounts. The feature’s resonance with consumers supports the idea that personalized savings accounts are a valuable part of a consumer’s financial health journey.
Personalizing savings accounts can make people better savers. A study by Dominican University of California professor Gail Matthews found that naming goals had a material impact on achieving a positive outcome for that goal. Abstract goals are less compelling for savers, making them harder to achieve than distinct goals.
From an emotional viewpoint, it’s even more pronounced. “Saving money is an abstract concept, but [creating a name] taps into the emotional part of your brain,” says Brad Klontz, founder of the Financial Psychology Institute. Simply put: Emotions drive outcomes.
Direct to consumer fintech solutions like Qapital take it a step further by enabling customers to name their goals and assign a picture as well. Instead of “Savings Account #xxxxxxxx4567,” the customer logs on and sees “Ski Trip to Jackson Hole” along with a picture of an untracked, snow-covered mountain. It’s obvious how a name and picture will create a more engaged, positive outcome for a consumer, compared to an anonymous 14-digit account number.
If fintechs are able to do this, why can’t banks? Like many things today, the answer is rooted in legacy technology.
The business goal when most traditional core banking systems were developed was to track a handful of accounts per household. No names, no pictures — just digits. When many of today’s core systems were developed, there was no publicly available internet to expose the core system’s data. The idea of naming an account, let alone adding a picture, would have been a laughable feature request from the product team.
And even if the core could deliver names and pictures, the problem for banks is compounded by the underlying economics of a core system, which charge about $1 per month for each account. That expense undermines just about any free, goals-based savings offering a bank might want to undertake.
Fortunately, there are emerging solutions for banks that can enable the more “fintech-forward” style of goals-based savings. These solutions will create some obvious, and some not so obvious, benefits for banks as they come into the market.
The more-obvious benefit to banks that deploy goals-based savings is deposit retention. If built correctly, banks can offer the solution to consumers at no cost, compared to direct-to-consumer fintechs that have to charge about $5 per account per month. A bank retains deposits and its customer gets the offering for free. Everyone wins. The less obvious, but more important, benefit to goals-based savings is “savings transparency.” Nearly all bank accounts are effectively blind to consumer intent. But adding a name and picture to a savings account changes everything — banks can now know what their customers are saving for. This insight into customer intent can translate to better options for the bank to deliver relevant products and services to support their customers at any point along their financial journey. More importantly, it means better and easier ways for customers to fulfill their financial goals, and they’ll have their bank to thank for it.