The startup is expanding the capabilities of its “save without thinking about it” algorithm to build long-term client relationships… the new offerings help take the friction out of investing and retirement by automatically moving money into accounts based on what it knows about the customer, including age, spending patterns, income and risk tolerance.
Digit’s algorithm analyzes clients’ income and spending patterns, looks at their financial goals, and moves money to retirement and investing accounts automatically. For the investment accounts, clients are asked about their long-term goal and money is moved into conservative, moderate or aggressive portfolios of exchange-traded funds depending on their needs. For retirement accounts, Digit matches customers with Roth or traditional IRAs.
In recent years, banks and robo-advisers have added features that automatically transfer excess cash into investment, retirement or savings accounts. Examples include Betterment’s “Two-Way Sweep” feature, Wealthfront’s “Self-Driving Money” tool and Royal Bank of Canada’s “NOMI Find and Save” capability based on tech firm Kasisto’s toolset.
Despite the range of platforms offering automatic saving and investing capabilities, Digit said it differentiates on ease of use, automation and low cost. … In addition, it adds a safety net of placing the excess cash into a “found money” staging account for 30 days before moving it into an investment or retirement account. This allows customers who change their minds about how much money they want to put away to move funds back to their checking accounts without penalties.
[Digit:] “We came up with this idea that our product needs to have some amount of bridge period between investing and actually setting aside money, so people can get comfortable.”
Digit strives to develop tools to serve its customer demographics, which, according to a company spokesperson, typically skew female, millennial and low- to mid-income. The company also serves freelance and gig economy workers.
[Principal consultant at Capco:] “I think the broader motive of Digit looks to be expanding the wallet share, but the way they are expanding the wallet share is by focusing on advice versus products… Instead of throwing an investment account at you, they actually make it easier and help you understand what the objective of investing is first.”