Personal finance app Digit, which helps customers save automatically by putting away small amounts of money, is moving into investment and retirement accounts.
The 7-year-old company, which is based in San Francisco, told FinLedger 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.
“This new category of features lets us expand beyond the short term and mid term, but to the long term,” said Elena Gorman, product marketing lead at Digit. “There’s this paralysis of choice when it comes to investing, so people just don’t participate, and we’ve spent a lot of time thinking about how we can make this as simple and secure as possible.”
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. Digit charges a flat fee of $5 per month. 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.
“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,” said Snigdha Kumar, business lead for new products at Digit.
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.
DriveWealth, a registered broker-dealer and member of FINRA and SIPC, is Digit’s partner for the retirement and investment accounts.
“We’re the plumbing, we’re opening the account for the customer, whether it’s an investment account, or a retirement account,” Bob Cortright, CEO at DriveWealth, told FinLedger. “[Digit is] analyzing the data, they’re understanding what’s best for the customer, and they’re sending us a trade that matches the behavior of that customer.”
While Digit is moving closer to offering a 360-degree view of clients’ financial lives, the company declined to comment on whether Digit-branded bank accounts were in its future plans.
“We will keep investing in automation and ways that we can make our automation smarter,” said Gorman.
Nikhil Sharma, a principal consultant at Capco, said in a context where product offerings are commoditized, it makes sense to work with partners to grow a feature set. For many fintechs, differentiation comes from the client experience, which helps customers become more closely tied to their ecosystems, he argued.
“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,” he said. “Instead of throwing an investment account at you, they actually make it easier and help you understand what the objective of investing is first.”
To date, Digit has raised more than $63.8 million in funding since its 2013 inception, per Crunchbase data, and customers have collectively saved more than $5 billion using the app, according to the company.