Qapital, a fintech with a money-saving app that paternalizes people into saving, has raised $30 million in fresh financing. The funding led by Swedbank Robur and Northzone, a venture capital firm, is only a fraction of the amount the app claims it has helped people save: Since its inception in May 2015, the app has helped 420,000 users save nearly $500 million.

Adding the Spare Change

There’s a lot of resistance to saving. Many of us like to live in the moment and spend money in the moment. We are also moving away from cash transactions which means that fewer coins are jingling in our piggy banks.

Will it then help if one could authorise a money-saving app to squirrel away some dollars as savings?  

Maybe not, as numerous money-saving apps have failed to get people to inculcate that habit. The truth is that if you are not motivated to save, you’re not going to save – and this is the missing link that Qapital explores.

The New York-based fintech, in comparison to other startups and financial verticals like Digit and Acorn, has an extra card up its sleeve: It uses behavioural economics and a system of rules and goals to encourage users to save money.

First, users link their checking account to the app. Their money is then kept in a Qapital account or an FDIC-insured account at one of the company’s partner banks (currently Lincoln Savings Bank or Wells Fargo Bank). Users then choose the goals they would like to save towards. They also establish rules that send the money automatically towards the decided goals.

For instance, Lucy Ross is a digital nomad who wanted to save to travel to Budapest and Prague. She downloaded Qapital and set up the following rules: Qapital would round-up all her purchases to the nearest second dollar and save the difference. It would also save the difference if she spent less than $15 on her favourite food item in a week, along with topping in $5 every day she walked 10,000 steps. In the end, Ross saved $961.68 for her European adventure and now says, “Saving is smart. But making saving automatic is wise.”

PC: Qapital

If you’re wondering how Qapital can interact with another fitness app to save if the user walked 10k steps, the answer is IFTTT (If this then that). The functionality helps apps connect and talk to other apps in a similar way as you can jump from this article to another about saving.

However, Qapital’s rules-and-goals based approach is the idea of behavioural economist, Dan Ariley. “Money,” he says, “is all about opportunity cost” – what you give up (getting a head massage) to get what you want (another bottle of wine for dinner). But Ariley believes that people never think about money like that: “They don’t think that if they bought a car, they would be giving up say, 300 lattes, 70 cappuccinos, 70 books and two-weeks of vacation…”  

Ariley knows that the world around us lures us into spending, and we succumb.

But he also believes that humans fare better with rules. Qapital, therefore, puts the opportunity cost in perspective as it encourages you to set goals and show that you could be spending your money on something entirely different than what you are right now. It’s smarter for the money-saving app then to not provide you your financial history or infotainment on why you need to save. Instead, it simply allows you to set goals you want to save towards. Wedding? A vacation? New phone? Make your own rules and start saving.

Remember Pavlov To Save

A big advantage with automatic saving is that it doesn’t take extraordinary willpower. With a trigger and rule-based approach, the user can, say, indulge in a guilty pleasure by setting up the round-up money-saving rules (Say you buy a muffin for $2.50, the $.50 automatically gets saved). One can think of this automatic rules-based saving as a fine or a reward to oneself for doing or not doing something. While this still requires an interest and intention towards saving, Qapital’s repeated triggers, reminders, monthly reports and most importantly, its gamified approach makes saving action-based, goal-oriented and for some, even fun.

Qapital grew out of the Swedish financial tech scene, when founder George Friedman and his friends realized that “there were enough tools to help people organize their money, but not much to help them save it.” At one point, Friedman and his family were trying to save for a trip to Kenya when they decided to put a goal behind each penny, so that it didn’t feel like ‘deprivation’. For example, “if they didn’t take a cab home, they could put that money directly towards their trip to Kenya”. They made the trip, and the idea for Qapital was sealed.

Qapital was launched in Sweden in 2013 and debuted in the U.S. market in 2015. In October 2015, the company announced that it has users in every state.

But there’s still one problem with money-saving apps.

Unlike with a savings account, the biggest drawback of money-saving apps is that they don’t offer any interest. According to NerdWallet, You earn 0.1% interest on all Qapital accounts, which is very low for a savings account. The startup, instead, profits through the interest on your saved money. While other apps like Acorn have been investing the saved dollars, it’s only now that Qapital has announced its latest tool – Qapital Invest which will invest users’ money in diversified portfolios.

Fintechs like Qapital emerged to ape and better banking services, but they are now outdoing banks with their use of science, technology and innovation. Qapital’s range of products and services prove that it wants to do more than banks currently are to discipline consumers into saving and investing.

But for a user concerned solely with saving and not exposing her nest to market volatility, it will be better to follow Qapital’s rules-and-goals based approach, identify a saveable amount, and put it in a bank account.