It has been said many times that the majority of Americans don’t have enough in savings to cover a $500 unforeseen expense. As a nation we are chronically bad at saving and while the savings rate went up for a time after the financial crisis it is back down near 2005 levels now which was the all time low.
MoneyLion is trying to do something about this. They have a somewhat unique position in fintech in that they have an online lending business but their real focus is improving the financial health of consumers. When you go to their home page they feature their app which anyone can download for free to help manage their finances. You can link bank accounts and credit cards and it can give you a good sense of your overall financial health.
I interviewed CEO Dee Choubey on the Lend Academy Podcast just over a year ago but they have made some great strides since then. I caught up with him again recently to get an update. Today, over 2.2 million people have downloaded the MoneyLion app and 1.3 million people have connected their bank account. This gives the company tremendous insight into their customer base.
In our conversation Dee pointed out that overdraft fees are a major pain point for many consumers. I did a little research and found a 2017 report on bank fees that stated the average American who has at least one overdraft pays an average of $412 annually on these kinds of fees. Dee said the average MoneyLion customer pays even more than that. He is on a mission to change this. He wants to not only eliminate overdraft fees from people’s lives he wants to help them get in the habit of saving.
In December MoneyLion launched a new product called MoneyLion Plus that is addressing these challenges head on. This is how it works. You sign up for MoneyLion Plus for $29/month but this cost can be effectively zero if you do certain things. Part of the commitment is also a $50 monthly deposit for savings taken directly from the customer’s bank account and invested in a brokerage account.
Financially Rewarding Customers to Change Their Behavior
So, about that $29 monthly fee, how does that go to zero? It is pretty simple. Every time you open the app and scroll through a few screens you get $1 deposited to your brokerage account. Do that every day for a month and you will end up effectively paying nothing for the MoneyLion Plus service. And you end up contributing $79 or more a month to a savings account.
I was a little skeptical that this would really lead to new behavior and while Dee would not share details he did say that the behavior they are seeing is consistent with what they had hoped. He stated that “the experiment is working”.
Now, there is one other important feature of MoneyLion Plus. For those customers who need some urgent cash they are entitled to a $500 loan at a 5.99% interest rate payable over 12 months. This is typically provided within 24 hours of the application. One more innovation they have implemented here is that the brokerage account is used as collateral for this loan which is one of the reasons they can offer such a low interest rate.
When you have your bank account linked MoneyLion will analyze your behavior and give you a heads up in advance if it looks like you are running a little short that month. This way they hope to eliminate the overdraft fees that can be crushing to financial health. They announced earlier this week that MoneyLion Plus has passed $1 million in savings less than three months since launch.
Of course, MoneyLion also provides a more typical online lending product with term loans up to $35,000 and five years and they have originated over 250,000 loans to date. They also generate revenue through affiliate relationships where they recommend products to trusted partners such as a credit monitoring service.
Back in January MoneyLion announced they had closed a $42 million Series B investment led by Edison Partners bringing the total money raised to $67 million. They are well funded and have a diverse set of offerings today. Dee says they “are building the financial operating system for the middle class.”
Moving the Needle on Financial Health
As I said in an article last month fintech should be doing more to improve financial health. MoneyLion is taking on the challenge and using technology to attack the problem of a low savings rate. If nothing else it is certainly a creative attempt to try to change customers behavior. Whether or not they can make the economics work remains to be seen.
So many people today live in constant fear of a sudden financial shock. We need initiatives like MoneyLion Plus to encourage people to save more as well as avoid all the bank fees from repeated overdrafts. If we can change behavior to eliminate these fees and build savings then as a nation we will be far better off.
Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s largest digital media company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.