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Jo Ann Barefoot explores how to create fair and inclusive consumer financial services through innovative ideas for industry and regulators

Effortless Saving: Digit CEO Ethan Bloch

Barefoot Innovation Podcast

Effortless Saving: Digit CEO Ethan Bloch

Jo Ann Barefoot

This is one of my favorite episodes we've ever done - my conversation with Digit founder and CEO, Ethan Bloch.

Digit has set out to solve one of the core problems in consumers' financial lives - how to save. Their solution is to make savings effortless, using an intelligent algorithm that analyzes your spending and income patterns and automatically moves funds into savings. I had dinner with Ethan last summer and suddenly realized he was describing an "Uberization" of savings, paralleling the financial industry's efforts to "uberize" payments, in the sense of making the mechanics disappear, like the non-exchange of money at the end of an Uber ride.  Out of sight, out of mind. With Digit, you sign up, and you automatically start to save.

I had always assumed that getting people to save requires fostering mindfulness - getting people to think long term instead of short term. Digit is going in the opposite direction - not mindfulness, but mindlessness. Again, effortlessness. Instead of hoping people will form habits that keep them focused all the time, on saving Digit just lets them decide to save one time. After that, they save. He's trying to drive the "minutes per year" spent on saving to nearly zero. No more budgets, expense tracking, figuring how much you should save and can save and did save. They're breaking all those practical barriers that keep most people stuck.

I know it bothers some people to have consumers saving without thinking. We wish, instead, that everyone would become financially educated and focus on their life goals - you could call it developing the financial virtues. There are innovators working on that approach, too, using behavioral economics to get people motivated. Still, if the eat-your-spinach approach was going to work, it probably would have by now. It's time to try new tools. I know other companies working from the same logic.

And here's an interesting twist. After Digit gets people started on effortless saving, they actually do switch over to mindfulness. They start texting their customers about daily savings progress. And they do it with humor which, as I've been saying, is a secret weapons of many fintech innovators. They are blowing up the boredom factor that keeps so many people from focusing on their finances. I asked Ethan for examples of this. Unfortunately I didn't get the jokes because they're aimed at millennials, but if you -- unlike me -- happen to know what's cooler than cool, Digit will send you this fun GIF.

 


Speaking of millennials, Digit's average user is 27 years old. Some people want to dismiss fintech solutions for this group, because so many other consumers need tools too My answer to that is, the millennials are the early adopters of new technology. It makes sense to start with them. As these products get traction, they will broaden.  Listen to Ethan, and many of our other guests, and you hear a big vision about remaking the financial lives of everyone. (And by the way, we do have a show coming up with Bee, which is reaching for a very different market.)

At the age of 30, Ethan is at the forefront of the fintech revolution. Digit is a winner of the Financial Solutions Lab competition sponsored by CFSI and JPMorgan Chase, which focused its first year on solutions for the more than one-third of Americans who struggle with managing cash flow management. (Recall that another winner was Ascend - we talked with its founder, Steve Carlson, in Episode 9).

Ethan explains how much money Digit has saved people so far (by the way, we recorded this discussion late last year, so his progress data are for 2015, not 2016). He explains how customers are using the savings they build up. He describes their investors and business model and plans.

And he talks about how to design great financial tools, that are like smart phones - that people can just pick up and use, without needing manuals, much less lengthy federal disclosure documents.

Speaking of those, Ethan really calls out the failures of disclosures. He also discusses the shift underway toward a more principles-based approach (echoing our episodes with other guests, including Thomas Curry). He describes, too, the huge obstacles to innovation that arise from well-intentioned government efforts, including the difficulties innovators face in working with banks.

Ethan also had the most surprising answer I've gotten yet to my standard question on how he keeps up with technology change.

Finally, for our many listeners who play Barefoot Innovation while you're carpooling to school in hopes it will inspire your kids to grow up and found the next PayPal, I should say I'm rating this episode PG-13, for language. Ethan uses a few words in our conversation that...let's put this way, you hardly ever hear them on National Public Radio.

Learn more at www.digit.co and @hellodigit and @ebloch and find further links below:

Note to Our Listeners:

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Last but not least, I am finally launching my long-in-the-making video series, Regulation Innovation. It's for people in the financial world contending with the top two disruptive challenges - regulation and technology innovation. It for both business and regulatory people, and for both traditional companies and innovators. I'll have much more information coming on this, but please come to www.jsbarefoot.com in March, and check it out!  I promise, there is nothing else remotely like it.


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