First Look: Can An App Motivate Consumers to Change Their Financial Habits?

Motivational rewards are likely as old as mankind's beginning. We do something difficult or unpleasant to get the outcomes we want — and sometimes a small recognition offered by another triggers the start of pursuing a perceived chore.

Certainly, banks use bait to get results. (Credit card points, anyone? Interest earned on savings accounts, well, once upon a time? Cash-back deals for swiping cards?)

These days, incentives offered to encourage execution of tedious tasks are being updated to suit our digital age. A case in point: savings accounts.

In October, a number of savings-related announcements that create newer twists on an age-old concept have taken place: SaveUp released a native app, Betterment bought ImpulseSave (a Boston startup that designs software meant to encourage people to save in a fun way) and Social Money (which white labels software to banks) debuted an API to allow startups to let their users make contributions to goal-based savings accounts with fewer steps.

The savings account is being reimagined by young companies to go beyond the ability to set up automatic savings deposits, and to some degree, offer an incentive to inspire activity.

Take SaveUp, for example. The spinoff from a Save-to-Win concept created by credit union think tank Filene Research Institute, the Doorway to Dreams Fund and the Michigan Credit Union League, strives to get people to look beyond "will I overdraw today" to "let's save $500 for holiday spending." To encourage a lifestyle change, SaveUp lets users have a shot at winning a prize, including a $2 million jackpot, among other possible rewards, after they earn credits for doing something like make a savings deposit. Banks and credit unions can and do partner with SaveUp to offer a customized version of the rewards-based savings service, presumably to get stickier customers and grow wallet share, eventually.

"The chance that something could happen to change their lives is very motivating to people," says Priya Haji, cofounder and chief executive of SaveUp.

In a 2012 whitepaper by Filene, the nonprofit explains why the expectation of an outcome gets people to do something. "A chance to achieve something new, win a valuable prize, or gain a new experience adds excitement to ordinary tasks," writes Matt Davis, Filene's innovation director, in the paper.

Raffles are just one way to draw people into doing tasks with delayed gratification. Another is designing software to get people to think what the dollars saved represent (another principle SaveUp deploys).

Indeed, savings accounts could have the look and feel of a mashup of Pinterest and a wish list — should banks allow it. Like the virtual pinboard service, savings accounts could allow photo-inclined people to pin images of their aspirations such as a trip to Bali or a house in the suburbs to serve as reminders of what the dollars represent. Piggymojo, a savings startup, lets people upload images to represent a goal. Meanwhile, Social Money lets users set up savings accounts by goal type to humanize the transactions.

The nascent trend follows other digital developments in the broad personal financial management (PFM) vendor category, which is generally criticized by analysts for poor adoption among bank customers. The term du jour among the newer fintechers is financial health, and PFM companies such as Moven, Numbrs, Level Money and Simple are designing software around the lingo. Alerts and the ability to set up goals are often made available from such PFM software providers.

Likewise, banks have added playful twists to account transfers in recent years. PNC, for example, lets people make a deposit with a shake of the phone (and an accompanying oink sound effect), while ING Direct in Canada debuted an app that shows people how much they would save if they stopped buying Starbucks coffee, for example. Meanwhile, Bank of America offers a "keep the change" program that rolls money from checking into savings while Chase hosted a Google hangout on financial literacy and consumers' financial health in late September.

To be sure, not all banks are hankering for more savings account customers, especially ones that earn them zero profit. The field of behavioral economics comes rife with controversy with some critics contending it's used by people to provide an academic rationale for their preferred policies as my colleague Kevin Wack points out. And changing people's habits is about as easy as marrying George Clooney (not to mention there is no-one-size-fits-all strategy to accomplish the feat and people aren't keen on "doing" financial stuff).

Regardless, it's important for bankers to track digital-inspired transformation. Just as Mint challenged banks to offer new features like account aggregation and PayPal made P2P payments popular, innovations of the savings account could affect banks' development plans.