No Thinking Required: Mobile's New Spin on Personal Finance

First came "safe to spend." Now comes safe to save.

A San Francisco startup has developed a new way to inspire financial discipline: its technology automatically transfers funds from checking to savings every few days, in amounts its algorithms believe a person can afford.

Digit, which has been pilot-testing its product since August, announced its public release in late February and named two bank partners: Bofl Federal Bank in San Diego and Wells Fargo.

The product requires consumers to link their checking accounts to its app. Next, it crunches data about their account activity, such as paychecks and bills, to determine how much to stash in custodial accounts held by its bank partners. Digit makes ACH transactions on behalf of consumers to put the money in the savings account.

Users will not earn interest on the accounts. Digit keeps the interest that it earns on the funds, which is part of the way it makes money. Down the road it plans to share the interest with users, such as by providing rewards when customers refrain from withdrawals.

The Digit product's debut comes as consumer advocates are encouraging the financial sector to develop technologies that help people save. American Express, for example, has created an initiative to reimagine savings for its reloadable prepaid card Serve. Even, which is in pilot mode, will automate deposits to savings accounts on weeks when users have earned more money than they do on average. SmartyPig, in Iowa, lets people create goal-based savings accounts. Qapital, which partners with Lincoln Savings Bank and targets millenials, is readying to launch its savings app in March. And prize-linked savings are now legal for banks in some states.

Ethan Bloch, chief executive and founder of Digit, is betting that requiring very little work of consumers will help them progress toward their financial goals.

"If you can't save, you will never have financial health," Bloch said.

The average Digit savings transfer is $18. The startup declined to disclose its ACH volume.

Sure, bank customers can already automate transferring deposits into their savings accounts. And yes, Bank of America lets people round up the change to deposit the funds when they swipe their cards. But Digit, which claims millennials as its target market, is advancing the idea by using data modeling to determine how much the customer can safely save and then transferring the funds over. The Google Ventures-backed startup, which uses Plaid and Yodlee to aggregate consumers' financial data, is looking out for four main signals to determine the deposit amount: current balance, the next paycheck, upcoming bills and spending patterns.

"Every transaction is quite valuable," Bloch said.

Savings accounts need to be reimagined for an era with ever-more technologies eliminating manual work, he said.

"We have drones flying around the world, and yet, there's still a human who has to do that [financial management] work when a machine can do so much better," Bloch said.

Mark Schwanhausser, director of omnichannel financial services at Javelin Strategy & Research, said the fewer steps it takes to save money, the more likely consumers are to do so.

"If it makes a lifelong savings habit as easy as finding [loose change] in sofa cushions," Schwanhausser said. "Wouldn't that be a good thing?"

Banks should incorporate such technologies to improve customer retention, he said. They create more connections between accounts, brand the institution as an advisor and strengthen the digital relationship, he said.

Stessa Cohen, a research director at Gartner, has long advised banks to provide money management advice to their customers through digital means, and she said Digit's cash analysis for savings is a good example for others to follow.

Cohen envisions a day when banks analyze customer data to, say, recommend how to pay off credit card debt in three years. But that would require an algorithm to crunch more data than what a checking account would likely yield alone. For example, to give better money advice, a model may need to factor in what kind of heat a person who lives in New England uses, she says.

Still, Cohen views Digit as already onto something that will increasingly matter to digital banking capabilities.

"People want to save money for emergencies," Cohen said. "They want to pay down debt.

It's a start on something larger around digital [personal financial management]."

Currently, Digit has features that let people take a break from the service. Should users want to recapture the funds deposited into their savings, they can at any time. However, it usually takes one business day to process those requests.

Users communicate with Digit primarily by text messaging, and it has a website that can be read on mobile devices but no mobile app.

The idea of boiling down the bank experience into 140 characters — more or less — creates a constraint that helps make everything direct and simple, Bloch said. It also helps make the conversation, well, fun. Digit sends automated texts that use emojis and humorous images (like one of comedian Bill Murray with the caption "You're Awesome") when someone, say, hits $100 or texts certain words like "amazing" to Digit. The idea is to make the interactions feel like a conversation with a financial buddy.

However, the playful features are meant to serve a very serious goal. Digit's ambitions are nothing short of providing any retail service that a branch would, Bloch said. The company, which calls itself 'House of Digit' as a tribute to great banking dynasties of years past, is first working to grow its user base and fine-tune some of the savings features. One day soon, Digit might take a cue from age-old holiday clubs to let a user set a time goal, such as not touching the savings for three months. And if he hits the objective, he could receive a reward.