A new fintech company is looking to scratch away poor savings habits by taking a cue from the lotto industry.
Last week co-founders Matt Cohen and Nicole Reyes formally launched Grand, a platform that issues $100 to $1,000 awards daily to those subscribed to its financial advice-oriented newsletter and awards weekly and monthly cash prizes to those who add money to their savings. Every dollar a user saves is deemed one entry to the weekly and monthly sweepstakes run by the New York City-based firm.
The duo was struck by statistics showing that 70 percent of Americans do not have $1,000 saved up, while at the same time, Americans spend more than $75 billion annually on lottery tickets, which amounts to about $300 per adult.
“That was the genesis of this idea — could you, in order to incentivize people to save, create a mechanism that every dollar that they saved was an entry to win cash, given the dynamic of wanting to win cash was so compelling,” Cohen said.
Cohen and Reyes researched similar models and learned that 40 percent of the population in the United Kingdom puts savings into premium bonds, which instead of earning interest, offer investors a chance to win between 25 and 1 million pounds a month. Cohen said a similar venture proved so successful in South Africa that the lotto system moved to shut it down.
The co-founders realized there was no large operation using prizes to promote savings in the U.S. and set about developing Grand, which began operating — albeit with little publicity — 14 weeks ago. Grand currently has 50,000 newsletter subscribers and more than 6,000 users who have opted to save with Grand.
Users can direct prize money or money in existing bank accounts toward Grand. Grand then works with a publicly-traded, FDIC-certified bank to maintain this money in savings accounts or with a broker/dealer to invest it in ways that can help users pay down debt, save for retirement or reach other goals.
Users do not have to pay for Grand. The company instead intends to make money by pocketing part of the interest that banks traditionally earn on customers’ deposits.
Eventually, Cohen said Grand would like to come up with a way to reward people for making debt payments on student loans, credit cards and other obligations.
So far Grand has attracted more women than men, and many of its users have some form of debt.
“It’s truly middle income — more than half of our users make less than $60,000 in income a year,” Reyes said. “It’s a significant portion of the country that’s kind of stuck in the middle and does struggle with where to go when it comes to big financial decisions.”
Prizes can prove helpful for this demographic, Reyes pointed out. She said the first few winners were younger, single moms, who could benefit from more resources to buy supplies for their children.
“The intent is to meet our users where they are,” Reyes said, noting that the platform plans to be able to help users with unexpected financial issues. “We’d like to be the go-to financial lifestyle brand for them, and be able to serve them at critical moments in their financial life.”
