With Saving Rates At An All Time High, What Will Consumer Fintechs Do?
Hi all, Julie here. Sitting down to write this newsletter was really hard. Not because I didn’t have something to write about, but because it didn’t seem like the appropriate thing to be thinking about given everything going on right now. This morning, I sat a few minutes aside to listen to my church’s sermon (starts around the 20 min mark), and I wanted to first just share that message with you.
We need to focus more on how we ourselves can enact change rather than relying on our elected officials to make the changes for us. The sermon reminded us that in ancient history, religion was one of the first things to bring mass groups of people together for good, and governments often separated people. It didn’t matter what your skin color, societal status or career of choice was. You were accepted as an equal. Both religious and non-religious individuals have done a pretty bad job at this in recent decades. Not because we’re bad people, but because we’d lost sight of some of the things that were truly most important. We were too busy worshiping money, appearance, status, and power. And in that, we were lost. I now pray that I myself can do a better job, since I’m just as guilty of worshiping false gods as the next person, and that I will set an example for those around me as well as the kids I hope to raise in the future.
Ok, now that that’s off my chest, this week’s topic is the trend of people saving as much money as possible right now for a variety of reasons. In last week’s economic report from the Fed, the US savings rate hit an all time high. Not only was it a record, but the month over month jump was huge too. Check out the chart from CNBC below:
Factset data shows the previous record savings rate was 17.3% in May 1975.
There are several reasons for this. One is essentially forced, since people are saying home and are less able to spend on certain things. A second reason—and a more sticky one—is that people are more worried than ever about their economic futures. With nearly 40 million Americans filing for unemployment, people are concerned about what their finances might look like in the future if stimulus and unemployment runs out before they find a new job or their old one returns.
On Friday, I asked on Twitter what changes fintech companies may or may not want to institute in light of this savings boom. One argument is that this feels temporary, and while that is true, I don’t think the mindset is. After the financial crisis, people were scared to get back into stocks and other financial assets for a really long time.
Another argument was that, similar to the 2008 crisis, people are going to want to move more assets to cash in general and keep it on hand due to uncertainty. The 10 year chart from the Fed of checkable deposits, which tracks checking account volume, demonstrates that fact. The big spike at the end involves stimulus checks, extra payments in unemployment checks, perhaps severance payments if folks were laid off, and people trying to keep more money liquid. In a CNBC interview last week, Bank of America CEO Brian Moynihan said checking accounts have 30% to 40% more money in them compared with 12 weeks ago.
A couple of examples of how fintechs are seeing this trend in data or preparing to act on it:
Credit Karma: When stimulus and other benefits were getting rolled out, Credit Karma launched something called Relief Roadmap that helped customers figure out what they might qualify for. In the coming weeks, the firm is planning to launch an extension that would give even more tailored actions that customers can take. Co-Founder Ken Lin told me when they first launched their savings product about a year ago that his goal was to do more than just savings. He wanted to truly help members plan more for the future. Based on the current climate, this seems like a great time to truly focus on product innovation around that.
SoFi: The startup tells me that they’ve been seeing people saving more in SoFi Money and SoFi Invest, but more telling to me is that they’ve seen a 235% increase year-to-date in the number of people using their Relay product (a budgeting tool to help manage and track expenses).
If I’m a consumer facing startup, or even a B2B2C one, I’d be asking myself how my customers have changed in the near term, and what changes might be sticking around for more than just a few months. Most fintech companies probably had to throw out their 2020 product roadmap anyway because of COVID, so we might see some new product initiatives from consumer facing startups, similar to how startups focused on small businesses were able to pivot into helping their customers with PPP loans. It’s not just Shopify, Plaid, and Square that can act quickly. One example on the consumer side would be Chime and Current getting customers’ their stimulus checks days before traditional banks and some other neobanks did. Like I said in last week’s issue, there are a ton of fintechs that can act quicker than we ever imagined, if the consumer demand is there. And considering the savings rate increase, it seems like Americans are more money conscious than ever before.