Saving 2.0: Breaking Free from Tradition

In Belgium, the traditional savings account remains highly popular, boasting a total deposit of over 300 billion EUR. With approximately 11.5 million inhabitants, this averages to about 25,000 EUR per Belgian on their savings account. However, this is an average value; most Belgians do not have this amount on their saving account, which means some hold substantially larger amounts.

Nevertheless, the savings account has come under scrutiny in recent years due to several reasons:

• For years, the interest accrued from savings accounts fails to keep up with inflation rates. Consequently, money on a savings account gradually loses its value.

• Following the banking crisis, a lot of people could not access their funds for very long times, due to placing them at banks that came into financial troubles (e.g. people who deposited their savings at Kaupthing bank or Optima Bank). Although deposits are protected by a 100.000 EUR guarantee, this may prove insufficient for those with substantial savings.

• The emergence of crypto-investment platforms (e.g. CoinBase or Binance) and online Fintech brokers (e.g. Robinhood, eToro or EasyBroker) has significantly lowered the barriers and costs associated with investing, presenting viable alternatives to traditional savings accounts.

• The Belgian government recently introduced a short-term government bond to compete with banks' savings accounts, aiming to pressure banks to raise their interest rates, as they deemed a lack of competition resulted in unacceptably low interest rates.

Despite these drawbacks, the savings account remains a familiar, straightforward, and user-friendly banking product for stashing away money for future acquisitions or as a rainy-day reserve. Other alternatives, though potentially more beneficial, often prove too complex for the average individual, particularly those outside the finance sector.

However, to encourage a shift towards better financial products and services, banks should consider further innovations, facilitating easier and low-risk investments, as well as simplifying day-to-day personal liquidity management.

Following products could help with this:

• Provide an easy, intuitive trading platform, not focusing on the more informed and aggressive trader (which most trading platforms target today), but rather on the occasional, low-risk investor. Check out Capilever’s blog "Tips and tricks for making investment tools more transparent in these high inflation times" (https://www.finextra.com/blogposting/24262/tips-and-tricks-for-making-investment-tools-more-transparent-in-these-high-inflation-times) for more info on what such a tool should and could do.

• Provide a solution to balance short- and long-term liquidity imbalances. Check out blog "Liquidity management as a (banking) service" (https://www.finextra.com/blogposting/22102/liquidity-management-as-a-banking-service) for more info on this topic.

• Enable easy access to short-term financing against your investment portfolio (i.e. Lombard loan) during liquidity shortages, reducing the need to maintain substantial funds in a savings account. Learn more about liquid asset-based lending’s potential benefits in retail banking via blogs "Liquid asset based lending - a clear retail banking market opportunity" (https://www.finextra.com/blogposting/17210/liquid-asset-based-lending---a-clear-retail-banking-market-opportunity) and "How liquid asset based lending brings benefits to both banks and their customers" (https://www.finextra.com/blogposting/17401/how-liquid-asset-based-lending-brings-benefits-to-both-banks-and-their-customers).

Those ideas build further on existing banking products and services, but we could think even more out of the box, like eliminating completely the notion of a saving account. Cfr. my blog "A bank account - A concept of the past" (https://www.finextra.com/blogposting/18567/a-bank-account---a-concept-of-the-past).

However, there are numerous innovative ideas that can enhance the existing savings account experience and help people manage their finances more effectively. Examples are:

• Gamification: When it comes to modernizing savings accounts and making them more engaging, gamification is a powerful tool. By incorporating elements like badges and pleasant animations, savings accounts can transform into a more enjoyable and interactive experience for users. For a deeper understanding of how gamification can revolutionize financial services, I delved into this topic in my blog "Gamification - A good idea for a serious topic like financial services?" (https://www.finextra.com/blogposting/19896/gamification---a-good-idea-for-a-serious-topic-like-financial-services)

• Saving goals: One of the key aspects of a satisfying savings experience is setting clear goals. Linking specific objectives to a savings account can transform the act of saving into a fulfilling customer journey. Understanding the motivations behind why people open savings accounts and aligning them with their goals is crucial. To explore how this can be achieved effectively, take a look at my blog "PFM, BFM, Financial Butler, Financial Cockpit, Account Aggregator…​ - Will the cumbersome administrative tasks on your financials finally be taken over by your financial institution?" (https://bankloch.blogspot.com/2020/02/pfm-bfm-financial-butler-financial.html).

• Automating saving actions: Automation is key to simplifying the savings process. Automated saving actions, such as setting aside a fixed amount per month, automatically transferring excess funds from your current account to your savings, automatic rounding of expenses (and saving the rounding difference) or algorithm-based savings predictions (e.g. Plum and Chip), make saving hassle-free. These actions ensure that saving becomes a seamless part of one’s financial routine.

• Saving simulators: Understanding the potential future outcomes of your savings can be empowering. Saving simulators are valuable tools that help individuals visualize their financial future based on the amount they save per month. These simulators, designed to be fun and graphical, can also incorporate various scenarios, including inflation and a growing savings amount over time. They provide a tangible representation of financial goals and motivate continued savings efforts.

• Save Now, Buy Later (SNBL): SNBL programs offer an exciting twist to traditional savings. By enabling individuals to save for a specific item they intend to purchase, in collaboration with the SNBL provider and the merchant, this approach can offer certain incentives for achieving savings milestones. To delve more into SNBL explore my blog "Is SNBL more sustainable than BNPL?" (https://www.finextra.com/blogposting/22453/is-snbl-more-sustainable-than-bnpl)

• Marketplaces: To provide users with a broader range of savings options, the concept of marketplaces can be introduced. These platforms give customers access to savings accounts from various third-party providers, enhancing choice and encouraging competition in the savings account landscape. For example, Raisin offers a platform that facilitates access to a variety of savings options.

• Price-linked Saving Accounts (PLSA): Price-linked Saving Accounts (PLSA) introduce an element of chance and excitement into saving. In these accounts, interest payments are distributed as prizes based on luck, encouraging individuals to save regularly for the chance to win rewards. Several providers, like Save to Win, Walmart’s Prize Savings, Yotta Savings, or Big Prize Savings, offer PLSA options. Taking this concept further, Layup incorporates sports outcomes, allowing customers to win cash prizes and products from brands based on the results of sports games.

These innovative features and approaches aim to improve the traditional savings account, making it more engaging, goal-oriented, and rewarding for individuals. By infusing creativity and technology into the saving experience, we can motivate people to manage their finances more effectively and better achieve their financial goals.

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