Monotto: Friend or Foe

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Not since the baby boomer generation has a single demographic cohort been more sought after by the financial services industry than millennials currently are. A smart, cost-conscious and tech-savvy bunch, millennials are perceived as being almost ruthless when it comes to cutting ties with their bank for a better option. And this has put pressure on traditional institutions to come up with new, innovative ways to attract millennial customers—and even more so, keep them loyal. This is especially challenging as it relates to unexciting, but necessary, services like savings accounts.

And that’s exactly the problem that Atlanta, Georgia-based fintech startup Monotto is solving. A white-label software solution designed for banks to fold into their services, Monotto is designed to make saving money less frustrating (and more engaging) for millennial customers. More than just an automated savings-to-checking application, Monotto’s algorithm analyzes a person’s debts, savings, investments, financial history and designated goals to determine the right amount of automated savings.

Sounds great on the surface, but is Monotto truly poised to be a friend of banks, or is it potentially a foe? Let’s take a closer look and find out.

THE GOOD
The phenomenon of users discontinuing certain services at their main bank in lieu of other fintech services or applications has come to be known as “unbundling.” Monotto provides banks with tools to prevent this from happening, specifically with millennials. While it’s true that millennials love to try new apps and services outside of their main bank, statistics also show that they’re four times more likely to use an app they need if it’s offered by their current financial services provider. Monotto enables both banks and credit unions to provide competitive personal finance tools to their customers, therefore decreasing the risk of unbundling and creating a stickier relationship with account holders. But what makes Monotto stand out from the crowd of similar automated savings apps is that its Artificial Intelligence (AI) makes sure that the amount of money being transferred is suitable for that particular account holder, at that specific point in time. If someone is behind on a savings goal, it may automatically transfer more on a particular month. But the AI will also take into account past spending patterns and not transfer so much that it will impact a person’s monthly budget.

This creates a true “set it and forget it” savings experience that automatically adjusts depending upon changing life circumstances. Users can also quickly adjust current financial goals or set new ones. If someone has an urge to plan a vacation to the Bahamas, for example, they can easily place that in the application and have it determine how much more money they need to save each month to achieve that goal. Finally, Monotto’s predictive AI also benefits the upsell and cross-sell capabilities of banks. Based on spending patterns, financial goals and life events, Monotto’s engine can then push and promote highly relevant additional services that are well suited to the individual at that specific point in time.

THE BAD
One of the main hurdles that Monotto will eventually need to overcome is the amount of competition that exists in the automated savings space. This entails both third-party apps that millennials will use to unbundle, as well as those that seek to emulate Monotto’s approach by switching from a business-to-consumers approach to targeting banks directly. Digit, Qapital and Level are just a few examples in the space that perform similar functions. Rather than should a bank partner with one of these services, the question could very well become which program to choose.

Banks will need to familiarize themselves with Monotto’s analytics platform in order to gain an adequate understanding of the return on investment they’re receiving, as well as passing necessary information on to regulatory bodies. Operating on a SaaS model, Monotto does entail an ongoing cost to banks that use its services, rather than just a one-time capital expenditure to build out an application. This means that in order for Monotto to be the best option, banks will need to make sure they are able to engage in a way that allows them to utilize the tool as a revenue generator, rather than just supplying the feature, by identifying potential customers at their time of need for particular, stated, goals and products.

OUR VERDICT: FRIEND
Keeping up with third-party fintech applications can be a tough game for banks and credit unions. Anything that makes it easier for traditional institutions to keep pace is of great potential value. That’s why we’re putting Monotto in the “friend” category. Primarily, Monotto allows banks to offer millennial customers a top-notch automated savings application within their own ecosystem. And more than just another monthly checking-to-savings app, Monotto’s AI is able to understand customers over time and adjust to their specific needs, the main goal being to prevent millennial customers from unbundling and using third-party apps. Bankers should think of Monotto as a way to capture, maintain and grow deposits, find new loan opportunities with its existing customer base and ultimately to decrease the risk of losing savings accounts. Many millennials want to save; they just don’t know how—yet. With Monotto, saving is easy, intelligent, and maybe even fun—if you can say that about a savings account!

Digit: Friend or Foe

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In the world of fintech, Ethan Bloch, CEO of the personal savings website Digit, has the three of the four important keys to success. He has the experience of creating a successful company, Flowtown, and selling it to a scale player, Intuit. He has brand name investors: General Catalyst and Google, among others, and they have given him enough capital to have a decent runway to grow the company. And he has what many fintech start ups do not—real live customers. In the last few months Digit has been adding 20 million dollars a month into Digit accounts. It is easy to see why everyone is eager to invest. What he does not appear to have 100 percent nailed down at this moment is a business model for his automated algorithm-based savings fintech.

The Good:
Bloch made a bet that he could make savings painless and almost fun. The market is full of planning tools that are hard to use or do nothing to help a consumer actually save. Digit is the opposite. A customer signs up, gives Digit their login and password to their bank checking account and the firm’s algorithm watches the account and identifies the cash flow of the account. It times withdrawals that the customer won’t miss, and then places the excess money in their Digit account.

This may sound like a traditional micro saving program such as “Keep the Change,” but there are several features that differentiate Digit’s platform from that model. For starters, it’s all centered on text communications. Also, consumers don’t have to set a specific amount to set aside to save, and that they can access their savings or withdraw at any time. Digit savings accounts are FDIC insured up to $250,000. The best part: It’s absolutely free, and it intends to stay that way. This is certainly a convenient and helpful feature for consumers as the amounts deposited into these accounts can be significant for high earners, and it can help create crucial rainy day funds that all consumers will appreciate later.

The Bad:
The immediate worry is that Digit’s app is a consumer data security risk. Digit says that account data is anonymized, encrypted and secure. This is probably not the place to try to settle the bank/fintech divide on data access and protection, but it is certainly a major concern.

The large number of deposits starting to build in Digit accounts are not rewarding consumers with interest. There is a very modest rewards program, 5 cents on every $100 saved–but it is certainly a long way away from compounding interest. Imagine a bank offering what amounts to a .0005 interest rate.

Digit is currently able to make money by earning interest on its deposits. While this may be an attractive vehicle for millennials’ convenience-and-mobility needs, it is not an investment account. For banks, it’s taking consumers money away from traditional institutions. Anytime one of your customers is depositing money, it should be with your bank—not a third party account.

Our Verdict:
Foe. Bloch says Digit will remain independent. Some big scale player will potentially want to buy the the firm, and if that happens all banks may need this kind of automated savings feature. The problem for banks is that Digit is draining deposits from banks and creating avid fans. If it expands into wealth management or other financial services, Digit could become a real competitor to a bank’s core business.