Transcript
Welcome to Money Isn’t Everything. I’m Mary Wisniewski, Cornerstone Advisors editor-at-large. This is a show that will be exploring everything a bank or credit union or fintech company does that has nothing to do with holding money, necessarily. It’s more about, how do you improve people’s financial outcomes? How do you do different stuff with identity? How do you appear, as bankers or credit unions, in different places in people’s lives?
Every other week, I’ll be sitting down with an entrepreneur, a journalist, or beyond myself, just a fintech observer with intel. We’ll explore the gnarly areas of banking, but also all the opportunities there are to solve many problems that are still very much in front of so many people, small businesses, and businesses.
Today’s first official episode is really special because I sat down with Ethan Bloch, who founded Digit, one of the first, if not the first, automated savings apps. It was also an app that sort of made me think, “Hey, fintech is cool.” So, it was a very meaningful conversation.
He went over lessons he learned in building Digit, missed opportunities in financial health, and there are so many. We also explored overdraft fees, how it’s a necessary service, but probably the price was a little bit wrong. So, I’m really excited for this first episode.
Ethan, I’m so excited that you’re here today. We were just reminiscing about how we knew each other, but you were one of the first, I don’t know, can I call you an app? What do I call you?
Yeah, you could say an app. I think that’s fair.
All right. Well, it was the first one I tried where I was like, “Hey, this is really interesting.” I remember, I think it was Scrooge sitting on a bunch of gold coins or something like that.
From DuckTales.
Yeah. So I was like, “Hey, maybe I can save money.”
Good memory. Well, yeah, we would text you, which was pretty novel at the time, some type of casual text celebrating some achievement, even if it was small. “Hey, nice job, you saved $50,” and then an animated GIF of Scrooge. Later, we had to remove the Scrooge and other Disney and other IP we had. But when we were early, no one cared.
No one cared. All right. So I was like, “Where did he go? He was really encouraging.” Now I know. That makes a lot of sense.
So, for the audience who doesn’t know what we’re talking about, you sort of changed the game on automated savings. What year was this?
Yeah, we started working on Digit in 2013. Then we had sort of an active beta in 2014, and we launched it to the public in 2015.
I do think we were, I consider ourselves, the first truly algorithmic savings product that would learn your spending and income and then try to set money aside based on what it thought you could afford, versus a roundup program that Bank of America had or a scheduled transfer, where you set aside $200 every month or something like that.
Sure. And I remember at the time, banks and credit unions were saying, they weren’t saying, “What’s the point of this?” but they were saying, “We offer a savings account. Isn’t that enough for consumers?” What did you say to them then?
Well, I just don’t think they really understood the problem that a large amount of people have, and a large amount of Americans have, which isn’t that they need a savings account. It’s that they need to calculate how much they can save and then actually set it aside.
We live really busy lives. Income comes, income goes. Spending comes up, spending comes down. So you need help figuring out how to actually set that money aside for a lot of people. That’s something the banks and many other institutions just didn’t see at that point that we saw.
No, they didn’t. And now we can fast-forward to the present, but before then, I’m calling this, I don’t know if I’m going to do it for every episode, but, “That’s What You Said.”
When you announced Digit on a blog, let’s see if I wrote this down right, you wrote, “Not everyone is a finance nerd like me, and not everyone should have to be in order to have financial stability.” Does that still ring true?
Yeah. Yeah, for sure.
I love that because I think in that same blog, you were talking about how you saved up your bar mitzvah money and invested it. I think when I was that age, I worked at a library for three-hour shifts and bought outfits from Anthropologie. So I’m like, okay, I did this wrong.
I was buying outfits, so okay, good. I wasn’t just a saver.
Good, because I was like, “Oh no, I did this wrong.”
Yeah, that’s hilarious.
So, this philosophy, we’ve been in fintech for a long time, and it’s really hard to see actual improvements with financial health, I’d say.
Such a problem.
Yeah, let’s talk about it. What did you learn? What do you think you did best by creating Digit, and where do you still see all these gaps for consumers who are struggling with either volatile income or just building a savings habit?
Yeah. I should say that I no longer work at Digit. Digit’s now part of an organization called Oportun, and they’re continuing to carry the torch forward with all the great work that we were doing and Oportun was doing.
But during the time that I was at Digit, the thing I’m most proud of is we helped millions of Americans save over $9 billion with the product. That’s just every day trying to calculate the amount of money that it thinks they could save and setting it aside.
So, when the need comes a month later or a few months later and something happens and they need savings, they have this little cushion. Or they have this down payment for a car, for education, for a house, for a wedding, or for whatever people save for.
That’s the thing I’m most proud of. I had no idea we would get to that point when we started this little text-based savings app in 2013.
And when did you have that idea first? When were you like, “This is what I want to try to build?”
Yeah, there was no single moment where it was like, “This is the thing.” It was sort of a series of trial and error and iterating.
It started with this idea sometime in 2012 or 2013 of, how could you help people have good financial health or a good behavior that leads to better financial health without requiring them to do a bunch of work?
That idea eventually led to, is it possible to help people save more, but not actually need to work more at saving? Which is usually counterintuitive. It’s like, “Oh, you want to save more? Spend more time figuring this out, figuring that out, setting the money aside.”
So, it was in that space where we were iterating, iterating, iterating and finally got to this automated savings experience.
One of the first versions of it would actually tell you, “Hey, you can set aside $16 today. Do you want to do it?” What we noticed was, the first time people would say yes, and then they’d get the text the next day and they would say no, or they would ignore it. They would stop responding.
We were like, “Okay, it doesn’t work. It’s a failure.” We started freaking out. Then we said, “Let’s just talk to the customers.”
We would talk to the customers and they’d say, “Well, if you know it’s safe to save, why are you asking me? Just move it.”
That was actually one specific aha moment. We removed that text and the product really, more or less, I know it’s cliché to say, kind of took off from there.
Yeah, it had clicked.
Once people would trust it to save and it would just do it, it clicked. That was with 11 users. We rode that to millions of users largely doing the same thing, but making it better and better over time.
Well, that’s so wild. That’s such an impressive thing to achieve. I remember this was sort of a debate in the industry. Do people need that pause, or do you just do it for them? Because it felt like there was a tension.
Yeah, there totally is. There’s a balance, and it depends on the task. We discovered through all of our innovating and exploration what things people want to say, “Yes, do it,” what things people are okay with just happening, and what things people want to be along for the whole journey in terms of saying yes or figuring it out related to money. It’s different per person as well.
What about right now? I know savings have been going down for a lot of people.
Yeah. The best thing to happen to savings is the pandemic.
I know. Well, let’s unpack that a little bit. Now, I know the industry and human beings are afraid of going delinquent on their debt. What’s the solution, Ethan?
I don’t know.
Tell us here on Money Isn’t Everything.
We did a lot of great work at Digit, but we didn’t get anywhere close to my aspiration and dream. It wasn’t just us.
We started Digit in 2013. A lot of other new-age fintechs started around then. Robinhood, Cash App, even though it was a part of Square, was starting around then. Chime was starting around then. Credit Karma was around, but they were getting significant traction around that time.
You fast-forward 10 years, and I look back and I’m reasonably disappointed in what we all achieved. I think there have been some great innovations. I think there have been things that have helped people, but then, I don’t know, it’s been somewhat underwhelming for me, even though there have been some big businesses built.
Yeah. It still hasn’t been the shift forward I would have liked to see.
What would that look like?
It would look like you could wake up in the morning and not really have to think about paying your bills on time, not have to think about how much you’re going to be setting aside today. You would just be less stressed financially.
As I said, what’s kind of bizarre is the pandemic occurred, people spent less money, everyone got cash from the government, and a lot of people were actually more financially secure than anything any fintech did over those 10 years. Which was a little sad to me on one hand, but also eye-opening on maybe the path we were all taking, or at least we were taking, wasn’t the best path to have the largest amount of impact.
It could just be a limit of what people are ready for, a limit of the technology, or I could just be living too much in a sci-fi future.
Well, I think a lot of entrepreneurs can find themselves in that scenario.
Since you created this product, certainly even banks and credit unions have a little bit more functionality with their savings accounts, so that’s been nice.
Their app experiences are better.
It’s better.
Big bank app experiences are better. They’re more customer-focused, which is great to see. Even stuff that we did, other banks and institutions copied.
Having a bot help you think about your money, most of the big banks or credit cards have some form of that today, or a conversational agent. It’s great. It’s the norm now to have a good mobile app. Even though there are still a bunch of crap ones, a lot of the big banks have a pretty solid mobile app.
I think in some ways, fintechs, including Digit, helped push the industry forward quite a bit.
Well, let’s talk about the chatbot thing because I know a lot of credit unions and bankers are like, “Oh yeah, this is how we’re going to communicate financial things to our members or customers.”
I know you had a little bit of a different experience, right? Didn’t you drop the chatbot pretty quickly?
We had it for the first few years of running Digit. It primarily would interact with people through text messages.
We came out with our actual app, an iOS app and an Android app, around 2016. What we learned was, to get, and this is obvious, we were kind of idiots then, or we were sort of blind to it, or I was, to get really large adoption, it has to be an app.
Which is very obvious today and probably obvious in 2016. But we were like, “Oh no, we’re not going to do an app. We’re going to be this special snowflake. It’s going to be text message and web.”
Then the consumer is like, “You guys are idiots. We need an app.”
Well, you responded.
So we did. We had an app.
The app was chat initially inside. Then, as we built more and more functionality, we just hit this limit on what was possible with chat. There weren’t large language models. There weren’t LLMs yet like we have today, which are only like 18 months old.
We hit this limit and we needed a traditional UI where you tap, you have buttons, and there’s a dashboard where you can see what’s going on.
So we had to move away from chat almost entirely. In our case, it was still around sort of in the periphery, but it became tertiary to the primary engagement with the customer. Then it was largely push notifications and them coming into the app, like you expect a normal app to be, where you’re tapping and going through screens, have a tab bar and stuff.
Sure. You already brought it up a little bit earlier, but trust and building trust, and what people are comfortable doing. I guess a bank or credit union, in theory, has trust already. But when they launch a digital brand on the side, they can struggle with that.
How did you find yourself building trust with consumers? You essentially turned into a new bank.
Yeah, we did. Certainly, by the end, in terms of the different products that we had.
Trust is hard. Trust is hard for any brand. I think it’s probably the most, if not one of the most, important things for almost any brand, and you build it over time.
If you’re an established institution, a credit union with an established brand, and you’re going to bring in new technology or a new customer experience and it’s financial, that is hard. I think it’s really hard.
We were an upstart and we had no brand, so it’s easier to experiment. You then find your people, your early customers, and that starts the ball rolling for trust.
Your first 100 customers help you get your next thousand. That thousand helps you get your next 10,000. Especially in a financial product, people talking about it on social media, people talking about it in reviews, people talking about it in a positive way is essential.
Because it’s not a brand you need to trust because it’s a T-shirt or socks or something. Your money’s in there, or it’s dealing with your money, so it’s an even tougher climb.
I was just at this conference, I was just telling Ethan people were talking about him there ahead of this recording, but a lot of the talk there was on, how much should one pay to acquire a customer?
To me, that’s something I feel like I should know the answer to, but I don’t know the answer. I’ve heard wild quotes and different ways, from a few hundred per customer to, I think, $5 per customer, which seems really low to me.
What was your experience there?
I think, in general, it very much depends on what your business model is and how you make money.
Ideally, you pay nothing to acquire a customer. Ideally, your product is so good people are telling everyone about it and it just spreads. That’s the best. Obviously, that’s what everyone would want.
Some consumer products have that, and even some consumer financial products have a mechanic like Venmo or Cash App, where their cost to acquire customers is extremely low because the core nature of their product is, I send you money, you send a friend money, they send a friend money. It just has a natural sort of viral effect.
Or you were Robinhood and free trading was so compelling, you grew through organic growth largely for the first five, six, seven years of your business.
Even Credit Karma in the early days, the free credit score was so novel it would just spread. Obviously, they’ve been a marketing powerhouse, but it was on top of the fact that they had such great organic growth.
So, I would say if you’re building a fintech product that’s consumer-focused, your goal should be zero CAC, which is ridiculous, not possible. Basically, it says the product needs to be so, can I curse on this or no?
Curse.
Okay, just good to know. I’ll try to limit it, though.
The product should be so freaking good that your CAC is really low. Which, again, in finances isn’t really realistic.
If you’re a bank account, you’re going to pay a few hundred. If you’re a credit card, you’re going to pay a few hundred to $500-plus. If you’re a wealth management firm, you’ll pay a lot for a customer. Insurance, again, you’ll pay a lot for a customer depending on the type of insurance.
It really depends on the business.
Well, you brought up this extra feature sort of thing. I’m thinking of Chime’s early payday. That was why it acquired a lot of customers.
Part of the show I want to explore is other things apps or accounts do that isn’t just holding money. To me, these are the things that are drawing people in.
What do you think would be an interesting hook for either a neobank or something? What would be solving a need that would make people want to sign up for the account?
If there was something, I would go work on it.
Ethan, me too.
So, let’s talk about that later.
They’re out there. Especially if you just scope consumer finance, I think it’s helpful to look at what are the hooks that have gotten companies to scale.
Whether it’s free FX with Revolut in Europe, a free credit score with Credit Karma, or the “get paid two days early” feature, which was really compelling.
But if you look at Chime’s growth, they were really never a majority organic-growth company, maybe in the early days. Chime became really effective at spending millions and millions and millions of dollars to acquire customers around that value prop, “We’ll get you paid two days early.”
Free trading for Robinhood was obviously incredible. Then there’s obviously a lot of the crypto hype and that wave, but there’s some realness to that too. Coinbase obviously had an incredible amount of organic growth just on the back of the crypto trend.
I think the trend part is another piece of it as well. What trend could you be a part of that helps you get growth, either because your hook is within the trend or it’s related to that trend?
I see this in fintech a little bit, and I know credit unions and bankers are sort of interested in this because, as their profitability model for consumer banking is going down with fees dropping, they’re like, “How can I make money and still, in theory, do good by the customer?”
Subscription models. I’ve heard that as an idea, bundling some things someone might actually want and having them pay for it.
What do you think about that as an idea? Do you think consumers would pay?
Yeah, it varies. Digit was a paid-only product. We had millions of people use the product and pay, and that worked great for us and worked great for the customer.
I think it depends what your goal is, specific to who’s your customer and how many customers you want to get over time. That should help shape a little bit how you make money.
I think in finance, if you’re only going to have a subscription, it’s going to limit your ultimate potential because there are just people that can’t pay or won’t pay for a bank account or for a set of financial services.
Again, it depends what you’re going to do. The nice thing about finance and consumer finance is you have quite a number of ways to make money. My hunch is you should make money from all the ways, if you can.
If you’re a bank, you’re going to make some money through interchange. You’re going to make potentially some money through some upsell into a series of products or a subscription. You’ll make some money through selling other products that other institutions have or that you have.
Or you’re going to make more money by having a banking customer that then becomes a wealth management customer, which is sort of the Chase playbook, in a sense. Give you a mortgage and then become a wealth management client, or bank you and then become a wealth management client.
I mean, the big banks are really making the majority of their profit, it seems, in wealth management these days. That’s where their growth is going to be.
Well, this brings up overdraft fees in my mind. It shouldn’t, but it does because it’s part of the revenue and part of the fee structure.
I know that was one of the things that brought up a little bit of heat on Digit, accidental overdraft fees. It’s also part of the conversation again today because regulators are like, “We’ve got to drop the price, at least.” It’s usually outrageous.
I think the place to start there is, from my reporting, when I first started I was like, “Who wants these overdrafts?” But actually, people need them to solve a problem. It’s that price that’s shocking. To me, that’s what needs to change.
Tell me what you feel and think.
I was similar. I started my learning journey and just my journey in terms of thinking about the banking system, and then specifically overdrafts, basically at a touch of, in a sense, “Oh, overdrafts are bad. They shouldn’t exist. It’s really expensive. It’s evil,” quote, unquote.
Then you start really learning and talking to people and understanding the market, and it’s like, well, actually, this really serves a need. In some ways, it serves a really important need for a segment of the population.
To think that it shouldn’t exist is to be out of touch and to not be empathetic enough.
Then you’re right, it calls into question the pricing of it. I don’t know the right answer to that, but it seems obvious the feature is important.
Chime, I think, has done a nice job of saying, “We have a fee-free overdraft up to a few hundred dollars,” because they’re able to make money elsewhere. You’ve seen other institutions start to adopt that or drop their overdraft fee entirely.
I think that’s right. The feature needs to exist, and TBD on what the pricing should actually look like.
Yeah. It’s just so intriguing because I think one of the many gaps still is, how do you create something that is suited for people with volatile income or gig workers?
I live in L.A., and there are a lot of gigs. You don’t know when that paycheck is hitting necessarily. To me, this is like...
Yeah, it’s a short-term loan.
Yeah.
It’s a small-dollar, short-term loan. There’s been a whole industry grown up, Dave and other products like that, where their core hook was, “We’ll advance you $50 for free, and then you tip us in some way so we make some income on it.”
Oh, let’s talk about tipping. Let’s talk about tipping because I know that is also, uh, uh, uh, by some people because sometimes that tip default setting is unusually high.
Dark pattern or something like that.
Yeah. Sometimes I feel like, I don’t know if I’m being naive thinking this, but I think some people are really trying to build something better, but maybe they accidentally build something, not worse, but certainly not something better. Does that feel fair?
I think it’s just hard. It’s so hard.
To take a judgment on Dave or one of their copycat products and say, “Oh, they set out to do something good, but it’s actually worse,” I don’t know.
It’s probably as good as an overdraft or better because it actually is cheaper if you look at it across all the users using it and average out the tips and stuff.
I should have told you, this is a philosophy.
Another thing consumers do is they’ll actually open an account not just with Dave, but with the other four advance products, and they’ll play them off each other. Consumers are smart.
In some ways, it’s like, “Oh, the poor consumer,” but consumers are smart. They’re like, “Oh, I’ll take this from Dave, I’ll pay back Albert. I’ll take it from Albert, I’ll pay back someone else. I’ll take it and pay back someone else.”
They’re able to use that, plus maybe even overdraft they have at their bank, and it’s just a way to get them a short-term loan that’s still significantly less expensive than, say, a payday loan. Which, again, is still a product that needs to exist in the market, but arguably its pricing structure is really bad for the customer.
Right. Well, let’s go back. I remember there were some negative headlines about customers using Digit, or maybe it was Oportun, for the overdraft fees. How did you...
Yeah. Digit, because it was algorithmic and would save automatically, would at times take... We would lose connection to someone’s bank, so we would think their balance was $1,000...
That was another subplot of years.
Yeah. We’d think their balance was X, but it was a little bit lower. Or because the system is so slow, Digit would save money on a Friday, but it wouldn’t leave the account until Monday. The weekend happens, you now have less money than it thought, and you get overdrafted.
Our policy had always been at Digit, if that occurs, we’ll reimburse you. We had a support flow and process for that to occur.
Even though we had that, there were people that would say, “Oh, Digit overdrafts you,” and people would point to us and be critical of that. They’d also lose touch with the fact that we’ve helped people save $9 billion, and people were doing something they couldn’t if they didn’t use the product.
Yes, there are cases where people get overdrafted. We also reimburse them. But just because we caused an overdraft, it was like, “Oh my God, this is a bad product,” and throw it all out.
Yeah. I remember reading those headlines. I was like, “Ethan, let’s chat about this.”
I feel like there are always a lot of negative headlines, but one area is on buy now, pay later. Is this good? Is this bad? Is it giving people another option to pay for something that they wouldn’t otherwise have?
On the other hand, I think you can use it sometimes for gas, which seems a little bit shocking. I wondered if you have a view on buy now, pay later as a useful product or, “Watch out for this, consumer,” or whatever you might think about it.
I see buy now, pay later as not so different than a credit card. In some ways, it cannibalizes the credit card market and expands it for people who wouldn’t have put it on a credit card but now can get cheap credit through Affirm or even Afterpay, now Block.
That’s how I see that. I don’t have some huge moral judgment on BNPL. I see it as an alternative to a credit card.
Okay. I think the fear sometimes is stacking it, right? To your point of consumers stacking it, and then it’s a little messy. But to me, that opens the door for, “Oh, you need a budgeting tool to be able to plug it all in.”
I think the cost is another criticism. It might be unclear how much it really costs because it’s not as straightforward. I mean, a credit card also isn’t very straightforward, I could argue.
But BNPL at times cannot be so straightforward because there’s a late fee or there’s a missed payment fee or there’s this other fee. You don’t actually know what you’re paying to borrow that money. I think that could be a valid criticism.
Yeah.
Okay, two questions left and then whatever you want to say, Ethan.
I want just advice for that hopeful, this sounds so weird to say this, but they exist, hopeful banker, hopeful credit union...
Hopeful bank...
Hopeful. Put that into Midjourney or DALL-E and say, “Hopeful banker.” I’m curious what image we get back.
I should just say that to my everyday friends, and they’ll be like, “What are you talking about? You really hit delusional peak right now.”
But I know them. If they’re trying to create, I don’t know, self-driving money has been thrown out, you name it, whatever we want to call this, if they have these aspirations to build something that sort of speaks to what you were doing, any words of advice or cautions to keep in mind? Or even a starting place?
Yeah. I think that, and this would probably be a starting place, but it might be kind of cliché at this point, is just to really understand your customer and understand what they want in life. Not what they want financially, but what they want in life.
Because then that can help shape the way the product helps them achieve that or reduces the amount of effort, energy, and time dealing with their money so they can actually do the things in life that they want to be doing.
Whether that’s pursuing their career more, pursuing a different career, spending more time with their family, taking care of their family.
People tend not to want to deal with their money.
Yes. That’s me.
That’s most people. There’s definitely the finance nerd or the...
I know. I’m like, “What are you doing, finance bro?”
There’s that group, but most people are not that.
So, how do you design a product for them that gives them the right thing that they need in the right way?
And, by the way, you shouldn’t need regulations to tell you what to do and not to do when selling a financial product. You should be able to use your own moral judgment on, “Is this good, or is this sneaky?” That’s how you should be shaping the product.
But that’s a whole other path.
That’s an important path. I think I’m having déjà vu. I think we were interviewing once and you were like, “Bob Dylan, I’m feeling Bob Dylan right now,” or something like that. Does that sound like you?
Perhaps. Well, it’s how I remember you, so hopefully it happened.
I do listen to Bob Dylan. It took me a while to appreciate or enjoy his music, and I will say I still can’t appreciate all of it.
Okay, but you have quite a bit.
Oh yeah. I mean, yeah. Oh yeah.
Ethan, before we close out, I want to open it up. Is there anything else you want to bring up to the listeners about what you’re up to? I know you won’t reveal it, but any way, if someone wanted to reach you, or anything you want to share about how to know more about Ethan?
I’m on Twitter. I don’t tweet that much. Just @eblock. E-B-L-O-C-K.
That’s the best way to get in touch with me as well or see what I’m up to. If I’m working on stuff, I would actually probably post there over time.
I’m more of a lurker than...
I think that’s the name of this episode.
And then we’ll see. I’m excited about some of the new technologies that are here that haven’t existed before and what they could do for people financially.
I’ve just been exploring that and thinking through that. Nothing really to share yet, but it’s exciting times.
When you come back on the show, we’ll talk about it.
Last question, though. What’s the image on your phone’s lock screen?
Oh, it’s hilarious. It’s actually a picture. You’re going to... I hope it’s weird.
It is weird.
It is weird. So, it’s a photo generated by Midjourney, which is the AI image prompting service, of a robot managing my financial life in a server room.
Ethan in a comic book, and still I think we’d be friends.
This is actually inspiration for some of the stuff I’ve been thinking about. I generated a bunch of these.
I was like, “What would it be like if you had a robot that was super smart, plugged into the internet, managing your money for you 24/7? You can just be off enjoying your life.”
It took me a little while to get to this image, but I like this one.
No, that’s cool. An unexpected...
So, Ethan, thank you for making it on Money Isn’t Everything.
Thanks for the time, Mary. Good to see you.
So, that was a wonderful conversation with Ethan, and I’m so excited that I’ll be sitting down with a founder of one of the first fintech events two weeks from now. So, be sure to tune in.
I’m Mary Wisniewski, and this is Money Isn’t Everything. See you next time.
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