Credit feels easy, saving is hard
It’s rarely been easier to get an unsecured loan, and many lenders do their best to make you feel great about yourself while you’re at it. Enjoy life now – borrow some money! (irrespective of whether you understand the T&Cs, need more stuff or can afford the loan). The immediate gratification seems very visible and exciting, and the important stuff seems to get hidden. Important stuff like repayment schedules of 57% APR.
Not only is easy credit seductive, it’s also complex: when we surveyed 800 people about how long it would take to pay back a particular loan, only 10% answered correctly. 20% were happy to tell us they had ‘no idea.’
If only savings products were as attractive and as accessible as debt. There’s some brain science at work here, a psychological hurdle called ‘presentism’. This is the way things that are right in front of us seem more important and valuable than things that are further away. For something to help us overcome our instinctive short-termism, it needs to work hard: benefit us financially, and be a piece of cake to use. There’s not much out there right now to get excited about - when people flock to a new savings account paying below the rate of inflation (Marcus from Goldman Sachs), you know the choices aren’t great.
Life – and its associated costs – are unpredictable. For us all.
You’re young - in your 20s. You rent, with friends or a partner. Socializing and experiences are a big part of your life - gigs, pubs, bars, restaurants, events, city breaks, holidays. Spontaneity is part of the fun, but also makes finances challenging, especially if your income is variable (which is now true for about 40% of UK workers). For many young neobank customers we spoke to, this is the function of their Monzo or Starling account: a kind of ‘everyday spend + fun’ budget. Most had legacy bank accounts for big stuff like salary, direct debits and savings; then on a monthly basis they transfer a few hundred pounds for lunch, going out, and some impulse spending.
As you get older, the spontaneity doesn’t entirely go away, but the unpredictable expenditures are more likely to come from your kids. Costumes for two Halloween parties. A lost school cardigan. More football boots for the pair she grew out of in 6 months. Dance classes. A new Pokémon release. A school trip. Just some of the little surprises parents have to manage around the mortgage, utilities, petrol, insurance, food…There are surprisingly few good, mainstream planning tools to mitigate incoming, extraordinary expenses.
People are more social than money
There seemed to be an increasing number of occasions when people were spending money together, and the fixes to help this happen smoothly aren’t great. The tech is not keeping up with our behaviour.
A joint account works, but it requires a real commitment. What if the relationship isn’t quite that close, but people still want to pool and spend money together? Newly living-together couples or flat-mates with shared bills; friends at an event or on holiday together; siblings buying a shared present for a parent, or parents buying a shared present for a teacher.
Some of the work-arounds we encountered included:
- Flat mates who set up a current account specifically for shared groceries, but which they could only spend from with the one issued bank card, which had to be passed around.
- An old Kleenex box with ten-pound notes left in for household essentials.
- One person takes responsibility for a payment – council tax, gas, a shared present – and chases up payment from everyone else. Fairly thankless work, and not great for relationships.
- Apps such as Splitwise (or bill-splitting tools in neobank apps) that calculate who’s paid and who owes what. An improvement on the tissue box but retrospective only, and often don’t facilitate payment.
Money goes invisible
Digitized money can be safer, more convenient and quicker than cash, and with the right tools, easier to keep track. But there are challenges with making it so easy to spend money. Under-estimating the size of your monthly credit card bill is a common experience; and we’ve heard people talk about the shift from PIN to contactless as making some purchases go unnoticed or feel ‘almost free’. Mums of young kids have told us that their children’s ability to grasp some of the fundamentals - that money must be earnt before it can be spent – is being eroded when our experience of money is just numbers on a phone screen.
In this new world of non-physical cash, challenger banks have built some good user-friendly features, certainly compared with the high-street names. Quick, informal notifications, category spending breakdowns, and dedicated savings pots to help with goals and budgeting (albeit at zero or low interest rates).
Convenience is king
Busy at work? Kids to take care of? Tons of life admin and ‘shadow work’? Active social life? Always on the internet / your phone? All the above?
Convenience has come into its own. Aggregation and hubs are where it’s at, plus killer features that save us time and mental effort. Even if somebody is just managing a current account, a joint account and an ISA all in the same bank app, there’s a stickiness, because doing anything different is a lot of hassle. More passwords, more PINs, more websites or apps to get to know. Newer banking features like quick peer-to-peer transfers and immediate transaction notifications can make a new app/account worth the effort. The eyeball battle of banking as a service is just starting.
Traditional retailer loyalty schemes have suffered greatly in this environment. Not only are points systems beginning to feel old fashioned, but as lots of people told us, nobody really wants to carry 6 loyalty cards (or even have 6 apps).
So, we wanted to develop an app that would help you on as many fronts as possible. Make it actually pay to plan rather than get sucked into borrowing. Make planning feel just as good as spending. Make spending – and saving – genuinely social. A way to prepare for unexpected costs and protect your money against inflation. Help you keep track, stay in control, happy with your money. And do all that in a way that is as convenient and easy as falling off a log. Here comes HyperJar…