Digit’s Bloch on the future of personal finance

By setting aside random amounts of money users don’t immediately need, personal finance app Digit has saved its customers more than $2.5 billion since its launch in February 2015.

The San Francisco-based company was one of the early movers in digital money management. Using its proprietary algorithm, the Digit app connects to users’ bank accounts and automatically sets aside funds for categories that could include vacation funds, rainy day emergency savings, healthcare and so on.

Since that time, however, the field of companies rolling out automatic savings capabilities has grown (including, for example, Qapital and Goldman Sachs-owned Clarity Money), and banks increasingly are adding personal finance capabilities within their apps. Still, Digit founder and CEO Ethan Bloch is focused on enhancing his clients’ ability to manage their money better.

In this episode of Fintech Unfiltered, which is sponsored by Q2 {open}, Bloch spoke to Bank Innovation on Digit’s next steps:

Since launching Digit four years ago, you’ve moved into a subscription model and you’re generating revenue from features like instant transfers and bill pay. What’s next for Digit?
It’s helpful to initially start with why Digit exists, and I can paint a bit more of a picture of where we hope to continue to head.

At the base level, we started Digit with this belief that financial health is something that should be effortless. Ideally, it should be effortless for everyone. In the U.S. alone, there are a lot of people that are financially unhealthy –around 180 million, according to the latest estimates. It doesn’t make a lot of sense, because there’s a lot of technology that can help us do finance better. What we’re attempting to do with Digit is to help create that world and help build those products.

What we’ve been focused for the last four years primarily is helping people save; publicly, we’ve saved [customers] more than $1 billion. More recently, we’ve started to focus on other areas of need. Overdraft is a big challenge for a lot of Americans so, earlier this year, we launched a feature around helping prevent overdraft with our overdraft protection feature. Also this year, we started focusing on debt [and] launched a feature that helps people get out of credit card debt faster.

What are the next steps you are thinking about?
As we continue to look out and think about our roadmap and what we’re trying to do, the end state is really a place where, when money enters their life, every dollar goes where it should go, when it should go there. They have the money for their bills, they’re paying down their debts, they’re saving for their short- and mid-term needs [and] they’re saving for longer-term needs. They might even be setting aside money for retirement one day, and the customer is spending very little time, energy and effort managing all that orchestration.

You’ve previously said that you’re not looking to replicate the model of the challenger bank, by getting into products like checking, lending, investing and so on. Why do you think all roads don’t lead to a challenger bank?
We don’t believe the right starting place is to replace the checking account. There’s a lot of work you need to do as a company and a lot of services it needs to provide just to issue a checking account product, [and] that’s not going to be that different than what you get from Chase or another bank. We’ve positioned our efforts and focus on other things that don’t yet exist — this idea of being able to save without thinking about it or pay down debt without thinking about it.

What is propelling customers to stay with Digit, and how are you intending to keep them?
It just comes back to the impact that we have on our customer. The reason people stay with Digit and pay for Digit is because it has a life-changing financial impact for them. The average Digit customer saves more than $2,000 per year. For many of our customers, this is the first time they’ve ever been able to save more than $500 in their entire life. We’re able to have that level of impact because we can be maniacally focused on that single need of how do we help someone save more and save in a way that feels right to them.

Our customer pays us to provide that service. [As a result], we don’t have to worry about making money in the more traditional ways of interchange or borrowing — where we would be making money when the customer spends money, which is totally at odds, in many cases, with the customer’s financial health.

Do you have any plans to launch any additional products?
The short answer is yes, but I can’t comment specifically if Digit will do a checking product or investing product. That being said, we intend to help our customers control their spending and spend more effectively. We definitely intend to help our customers have money for the long term. I don’t know if Digit will launch an investing product or have an investing account but, when we think about the core needs of the customer around spending, saving, borrowing and planning, we definitely will be launching features around all those for the future.

Do you have any comments on your customer growth?
We don’t share customer numbers directly but, since we switched from a free product to a paid service, which happened in the middle of 2017, we’ve grown a little over 300%. We’ve never been adding more customers per month.