Last week could be considered a good week for Occupy Wall Street (OWS) protestors – Bank of America backed off its plans to charge debit card fees due to public pressure and SaveUp, a new program rewarding people not for spending, but for saving, was launched. Although the launch of SaveUp has no direct connection to the OWS protests, it certainly reflects the call for a fundamental change in the financial system that excels in encouraging people to spend money, but does very little to reward them for saving it.
On Tuesday, SaveUp announced the launch of its public beta, providing Americans who bank at more than 18,000 US financial institutions with the option to sign up for SaveUp and begin earning credits. These credits can be earned by making positive financial actions, such as contributing to your savings or retirement accounts; paying down your credit cards, mortgages or other loans, and engaging with SaveUp’s financial education content on the site.
The credits users earn can be redeemed for chances to win instant prizes and entries into weekly and monthly drawings, which are provided by companies such as Virgin America, GameStop, and Banana Republic that partner with SaveUp. The prizes range from retail gift cards and consumer electronics to what the company calls ‘aspirational’ prizes (luxury vacations, home or wardrobe make-overs) or ‘life-changing’ prizes (a new car, money for college tuition or debt pay-off, or a $2 million jackpot).
“The driving force behind SaveUp is to help Americans succeed financially,” says Priya Haji, CEO and co-founder of SaveUp. Haji is a serial entrepreneur who co-founded and led World of Good, a global marketplace where artisans from around the world sell locally produced crafts. World of Good was sold to eBay in 2010. The other co-founder is CTO Sammy Shreibati, a veteran of PrepMe, which provides personalized PSAT, SAT and ACT test preparation via the internet.
So what made these two come up with the idea for SaveUp? “SaveUp came from our passion to create an innovative company that uses technology to benefit society – in this case, helping people to improve their financial futures. We believe Americans need a new type of personal finance model that rewards good financial behavior instead of encouraging spending.”
And apparently they’re right. Americans have never been big savers and it doesn’t seem to get any better. For example, a March 2010 Employee Benefit Research Institute study showed that 43 percent of American workers said they have less than $10,000 in savings (up from 39 percent in 2009) and 27 percent said they had less than $1,000 (up from 20 percent in 2009). Only 69 percent said they saved for their retirement in 2010 (down from 75 percent in 2009).
The question is whether prizes will be an adequate incentive for Americans to do the right thing and take a better care of their financial matters. There are some reasons to believe it can actually work. First, Americans love to play and gamble – in 2009 Americans spent $58 billion on lottery tickets. It means that the average American is willing to pay about $200 annually to the lottery for the chance to win let’s say $200 million – doesn’t it make more sense that the same average American would prefer to use this money for his or her own needs and get the chance to win $2 million? Prof. Melissa Kearney of the University of Maryland’s Department of Economics, who studies prize-linked savings products, summarizes it this way:
“So a lot of Americans think the lottery is their only chance at winning big sums of money, why don’t we take that appetite for gambling, for a product like this and attach it to a savings vehicle that offers some positive return? It’s a win-win situation.” (source: Freakonomics)
If the concept of rewarding people for positive actions sounds familiar to you, you’re not wrong – this is very similar to the model Recyclebank is successfully applying in the household recycling market and is about to test in the transportation space through its collaboration with Transport for London (TfL). It’s true that Recyclebank provides actual rewards while SaveUp only provides the option to win them through drawings, but idea is still the same idea, and I’m sure SaveUp won’t mind becoming the Recyclebank of their market one day.
SaveUp already secured $2 million in seed capital from BlueRun Ventures and True Ventures. “SaveUp is disrupting and completely reinventing the entire concept of traditional rewards programs,” said Jonathan Ebinger, Partner at BlueRun Ventures. He and the other investors believe that SaveUp’s unique and creative approach to motivating Americans to improve their financial health would succeed. Time will tell if they’re right, but I’ve got the feeling we’ll see large banks beginning to offer similar programs in the near future. Don’t you think Bank of America for example would do everything it can to be mentioned on the news not because it wants to make money out of debit card fees but out of a rewards program that rewards customers for saving money? I bet they do.
Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is also an adjunct professor in the University of Delaware’s Alfred Lerner College of Business and Economics.