Consumer savings figures in the U.S. have not been terribly encouraging historically. A low savings rate comes as a direct result of the large swath of Americans living paycheck to paycheck. And it’s not just a problem of low-wage workers — some 37 percent of consumers earning over $100,000 a year report living paycheck to paycheck.
The pandemic — and the stimulus funds it brought along with it — did manage to change the direction of the trend a little bit, i2c CEO Amir Wain noted in a conversation with Karen Webster. For many, the stimulus programs presented an opportunity to pay down debt and put some money into savings.
The hope, he said, would be to see more of that kind of behavior going forward. But the reality will likely fall far short of that hope. While some consumers will absolutely treat this as a turning point around which to reorient their financial lives; others will not.
“My fear is that many simply won’t; they will just go out and spend more,” Wain said. “I don’t know if savings is considered cool. Spending is definitely cool. Going out and picking up a Louis Vuitton bag, people just kind of feel good about it.”
And while spending is a good thing and important for pulling the economy along, the need for financial education around spending and saving is becoming increasingly obvious.
It’s a situation that presents a widening opportunity in the financial services segment to reach a mass-market bucket of consumers that banks and FinTechs are lining up to capture, Wain said.
Adding New Value To An Underserved Market
Financial services customers in the U.S. break down into four segments, Wain said. The first tranche are customers who are relatively early on in their relationships with banking and who need fairly basic services. This is where FinTechs and other up-and-coming digital players have had an advantage. They have been able to easily vacuum up the customers mainstream banks have been happy enough to let go of because serving them in an economically efficient way is extremely difficult.
At the other end of the spectrum, he said, are high net worth customers; the category in which banks have the most defined advantage as it would be difficult for FinTechs to compete with the high level of personalized service that players like J.P. Morgan Chase can offer.
The two tranches in the middle — the standard, middle-class banking customer and the wealthier, high-balance premium customers — are where the real competition is starting to heat up, Wain said.
“These people who have a regular direct deposit will be important clients for FinTechs in the future, and I think that’s where FinTechs are doing a great job in picking up that customer segment,” he said. “And this is where you will see more and more fights between the banks and the FinTechs because while banks aren’t doing anything special for them, they are still a large chunk of the bank’s revenue.”
And banks will certainly feel the pinch if that large chunk of consumers decamp to FinTechs that, Wain noted, are working overtime to build in additional services to tempt those middle-class and high-balance upper-middle-class consumers onto their platforms — which means focusing more acutely on the massive numbers living paycheck to paycheck.
Making Banking Cool By Sweetening The Savings Deal
There is no single universal approach banks or financial services providers, in general, can take to promote savings, but there are a lot of things they can try. Offering people premium customer status with extra privileges for saving 10 percent of their income, showcasing top savers on the platform, or even things as simple as promoting and helping people configure their savings are some options.
In the end, it all comes down to getting customers to do it, and technology can play a role by helping customers configure a savings play that works quietly for them in the background and positively reinforces achievements in savings goals, he said. It’s the something extra that consumers are increasingly demonstrating that they need from their financial services providers. And banks, looking to hold on to their middle-class consumers, need to start thinking about how to offer it — or say goodbye to customers who will seek it elsewhere.
“We can come up with many ideas, but it comes down to the fact that the industry needs to focus more on that segment to help people living paycheck to paycheck,” he said. “It’s not going to be just the stimulus or the technology — we will need to promote it and make saving cool. And I’m very hopeful. I think this will be driven by the need to differentiate in a competitive market.”