Their use of innovative technologies allows them to provide cutting edge features, effortless account creation and lower fees. But are these new financial services really offering a different solution versus conventional banks?
To answer the question, we need to look at the business model of a bank. You could think of a bank as a platform, bringing together borrowers and depositors. However, normally with a platform you’d expect a much lower platform rent, nothing like the discrepancy we see between the rates charged to borrowers for overdrafts, credit cards and loans versus the rates banks offer depositors for their current and savings accounts.
Due to this high platform rent we assume banks must add extra value acting as an adviser to their customers, by helping to reduce debt and increase savings. But as long as they rely mostly on consumer debt for profitability, it will prove difficult to convince shareholders to invest in propositions that focus on helping customers to grow their money, rather than spend it.
“A sustainable business’s commercial interests should be aligned with the needs of its customers. To really drive innovation that delivers customer benefits that go beyond a slick app and somewhat improved transparency, you have to start with the business model,” says Aritra Chakravarty, founder of fintech startup Dozens. Mr Chakravarty previously spent more than a decade at HSBC covering investment banking, strategy, chief operating officer and digital roles.
He then left to found Dozens, a company built on a business model that aligns business interests with the customer’s financial wellbeing. Dozens’ financial products, app and services were designed in collaboration with 300 people across the UK to ensure it caters for a variety of financial needs.
By providing customers with simple, digital access to financial literacy, and opening up sophisticated products previously earmarked for wealthier segments of the market, Dozens looks to make saving easier and more rewarding for everyone.
“We get to invest time in creating quite different features for budgeting and saving, because our business model relies on it,” says Mr Chakravarty.
Dozens is not a bank, but it is the only UK fintech licensed as both an e-money institution and an investment firm. In that, Dozens’ offering is unique as it is able to combine a current account with smart budgeting and saving tools as well as an investment manager, all in one app. With this integrated approach, Dozens aims to support people on their journey, wherever they are, from spender to saver, or saver to investor.
A great number of people budget by checking their balance every day, so Dozens’ smart budget feature which simply takes a user’s income and expenses, and calculates a budget that adapts allowing for fluctuations in spending, goes a long way to enabling users to stay on top of their finances.
“If a customer has £20 to spend a day and they go over this limit, then obviously more money has to come from elsewhere. The budget feature tracks how much you’ve overspent then it recalculates your budget to balance the difference across the week and keep you in credit. If you can focus on having a positive week, you are you are much less likely to go into overdraft by the end of the month,” says Mr Chakravarty.
In addition to its budgeting tool, Dozens also offers a variety of ways to save, like their roundup feature: customers can choose to save by rounding up transactions and creating automatic saving rules such as “save £1 every time it rains” or when someone tweets. While these features might only appear to help users save a small amount, this amount – and the change in behaviour – builds up over time and helps spenders save in the long term.
“Habitual spenders find it natural to get their account balance to zero, but when they have switched on these rules, saving is smooth and effortless, and so they are helped on their journey to becoming a habitual saver. It's all about bringing saving a little bit closer to the customer’s life and then trying to make it fun,” says Mr Chakravarty.
Dozens also looks to make investing more accessible for those people who have already built some savings. Research by YouGov, Dozens and Seedrs this year found that almost half of consumers don’t know what interest rates they are getting on their savings, and more than seven in ten people do not have investments.
Mr Chakravarty notes: “Banks holding retail deposits aren’t structured in a way which incentivises them to help customers invest some of their savings into higher return products, even if it’s right for their risk appetite and financial situation. Any funds moved away from current and saving accounts means a smaller lending book and so less revenue.”
To simplify and open access to investing, Dozens offer 5 per cent per annum fixed interest bonds. How are Dozens able to offer a fixed interest of 5 per cent? Because they treat the 5 per cent as part of the cost of building an entire offering around small savers, making interest rates a topic of discussion again. Dozens look to further open up the world of investing by making it easier and more accessible with their thematic portfolios and a simple onboarding journey: “With interest alignment in mind, we don't charge platform fees if your investment goes below its original value. So on those days you lose money on the investment, we don’t charge, meaning we only do well when you do”.
It’s not just the financial space Dozens is looking to disrupt with the principle of fairness, it’s the workplace as well. Mr Chakravarty is looking to redefine the culture of a financial institution. The unconventional team behind Dozens is almost two-thirds female and approximately half the employees do not have a finance background. Communications, all the way to salaries, are completely transparent and product development always starts with understanding the diverse team’s financial needs, and then expanding that process to the Dozens community across the UK.
As financial inclusion is key to Mr Chakravarty’s mission, the firm is also investing in non-digital customer research. They currently run initiatives such as “The People’s Money Survey”, a tour of the UK where Dozens seeks to understand people’s financial needs and which services are needed, and a pop-up in partnership with Westminster City Council on Harrow Road, a struggling high street in London, to learn from local businesses and residents about how financial services can help revive the high street.
It may seem like a no-brainer that a business’ and customers’ incentives should align but in the financial industry it’s unheard of. So, have these financial services actually offered a new solution? Unlike many challengers, Dozens is going beyond simply offering a user-friendly interface and is truly committed to fundamentally transforming the financial industry so it is fairer towards customers.
When investing (excluding our 5 per cent per annum fixed interest bonds) your capital is at risk. Find our more at www.dozens.com
Column as originally published in the Sunday Times “Future of Fintech” supplement on 29 September 2019