Safestream – bringing together liquidity and returns for employees
A puzzle that we have often pondered here at Wagestream is how we could best encourage employees to build rainy day funds. The Money Advice Bureau found that 50% of households don’t have enough money to pay for an unexpected bill and 50% of people don’t have a savings account at all.
One hypothesis is that many of us underestimate the probability that an unexpected expense will arise. We all know the feeling of ‘it will never happen to me’, therefore we don’t put much personal emphasis on saving for a rainy day. Another theory is that providers of savings products rely on consumers maintaining a higher level of stability and capital before they will offer an interest rate that makes the proposition attractive. This results in minimum requirements, such as a fixed monthly saving commitment, and lock-up terms that make products hard to access for those on low income and effectively alienating a large group of consumers.
There are both market effects and consumer preferences that have caused a situation where 50% of consumers do not have a savings account. Our product has been designed to provide effective and tangible incentives and encourage employees to prioritise their savings.
To do so, we had to ensure that we satisfied two different criteria for the Wagestream product.
Criteria one: Ensure liquidity of savings so that customers aren’t blocked from using savings for unexpected expenses.
Criteria two: Provide an opportunity for returns outweighing the current 1.4% banks are providing, with little risk.
Criteria one – Liquidity
Our account is fully accessible and requires no lock-up to access the return opportunities. Whilst this may appear to be an obvious aspect of a savings account, many accounts require a level of commitment in terms of size of contribution and avoiding withdrawals that mean, if they are used, they are not effective when an unexpected need arises. This potentially leads to the use of high-cost, short-term credit and can mean employees are deterred from using them altogether.
Criteria two – Returns
The best way for us to fulfill criteria one and two together was to provide returns in the form of a prize linked savings account.
Prize linked savings schemes give people the chance to win big prizes for saving money. They usually work by giving savers an extra ‘ticket’ for every extra pound they save. But in contrast to traditional lottery tickets, if you don’t win the headline prize, you still get to keep the money you have saved. This is why they are sometimes called ‘no lose lotteries’.
Schemes of this kind may sound like a recent idea however, we’re all actually very familiar with them. Premium bonds have been around since 1956 and it’s 22 million users have the chance to win from £25 up to £1 million. The popular appeal of prize linked savings is not just restricted to the UK. There are now prize-linked savings schemes operational in Argentina, Brazil, Columbia, Germany, Indonesia, Japan, Mexico, and many more.
The first reason why prize-linked savings are effective is that they offer you the opportunity of winning big. No standard investment opportunity offers the chance of such returns. And most standard savings accounts, particularly in the current period of low interest rates, cannot offer the prospect of thousands of pounds of bonus in addition to your existing savings.
Another reason is that the potential for winning big adds an element of excitement to a practice that is inherently associated with austerity and modesty.
And this explains, in addition to the potential for a big single pay-off, why prize-linked savings and lotteries have the ability to attract low-income individuals who might not normally seek to put small sums of money aside. US surveys have shown that lotteries seem to be played by all cross-sections of society – across gender, race, income and education groups.
This is why we felt a prize-linked savings option was the best way to combine returns and liquidity for a product that genuinely encourages people to save.
Safestream works through allowing employees to save directly from their wages into a prize linked savings account where employees can win a bonus that matches their net increase in savings over the month. The number of winners is based on organisation size. To encourage employees to consistently contribute to their savings we have devised three simple ways that encourage saving at every point at which they access their salary.
Employees can elect to contribute a set amount a month coming direct from salary, before they receive their pay. This means that contributions are made without the employee having to actively make that saving.
Stream and save
Everytime an employee streams their wages they can allocate a fixed amount that will go directly to their savings account. The amounts chosen may be as low as 50p per stream, or as much as £10, with the aim of capturing users who may not consider themselves able to commit to a fixed monthly contribution but still wish to start a savings habit, no matter how small.
Save the pennies
This option works best for shift workers and operates by saving a fraction of each shifts earnings as they come in. For example, if an employee earns £73.89 for a 9 hour shift, we’ll round down to the nearest pound, £73, and add the excess, 89p, to their savings account.
In all cases the employee can cancel or pause their contribution right up until payday, and should they need to access their funds for an unplanned expense this is both instant and free. Our aim is to make the product so appealing that the overwhelmingly obvious decision is to start saving at any level.
Building a savings community
70% of all current national lottery syndicates are formed at work. With a prize linked solution as the incentive, we wanted to build a similar community of savers, to increase coordination across employee groups and encourage the gamification of savings.
That’s why we launched the Stream Team, a Facebook Community with nearly 500 members in just 2 months. It’s a community where members share tips, memes, articles and generally discuss their finances. For January, we’re encouraging the community to save with us by taking part in the 5:2 savings challenge and asking members to share their experiences.
Safestream and beyond
The average savings goal is set at £250 showing that we’re already making significant strides towards ensuring that an unexpected bill doesn’t have the ability to financially derail the 50% of people who currently don’t have any form of savings account. We’ve now launched Safestream to three clients. Camden Town Brewery, who launched on October 9th have already experienced a 27% adoption rate with one employee already reaching their savings target. These results are incredibly exciting and we only expect them to grow as we roll out to more and more clients.
Our approach is to always build products with the sole purpose of improving the financial lives of working people and with that in mind we are continually looking at what we can do to optimise and add to our product suite.
This is just the beginning of Safestream, so watch this space as we continue to release features that encourage saving at every point of financial life.
For a demo and more information about Wagestream, get in touch.