Dealing with Unexpected Expenses 

Over the last two decades, when working with financial services firms and their end-customers, we invariably encounter a common Customer Scenario: "I don't have enough money to pay for an unforeseen expense." Oddly enough, It doesn't matter how affluent the customers are. They may still have to scramble to pay for a kid's car repair, a large medical bill, or any unexpected large expense. Of course, we're all supposed to have a rainy day fund - savings accounts or liquid investments we can draw upon in the case of emergencies - but people are invariably caught short, and it's very stressful.

Most financial services firms profit from this customer "Moment of Truth" by extending lines of credit on maxed out credit cards, providing short-term loans (often backed by home equity), or offering payday loans.

One enlightened bank president had another idea - which he came up with in one of our Customer Scenario Mapping customer co-design sessions with middle-income parents: a "Life's Exceptions" account. This was a quickly-triggered rainy day fund that automatically moved money from savings to checking and added quick access to a pre-approved-for-all-existing-customers' low-interest loan, if necessary, to make up the difference. Triggering a "Life Exception" generated a budgeting/cash flow management application that would automagically appear to help the couple repay the emergency money they had needed. The budget and proposed repayment plan would be pre-populated based on the customers' income and expense history (even if they weren't already using a budgeting or cashflow management tool). For a variety of reasons, the bank chose not to implement this innovative idea that their customers and their execs co-designed almost 10 years ago. Too bad.

Dealing with Uneven Cashflow

What caught my attention this week was a write-up about a soon to be launched mobile app, called Even. It's designed to help people who have a reliable source of income, but uneven cashflow. So, for example, people who work at Starbucks or at another retailer that varies workers' hours every week. People know they'll be working, but they don't know exactly when they'll be working or how much pay they'll receive each week. This is a common problem for a growing percentage of the global workforce.

The Even mobile app is designed to automatically detect how much you have coming in, on average, let you specify your known expenses each month, and even out your cashflow. It does this in three ways: 1) it sets a monthly threshold for the least amount you will earn in a month and helps you keep your spending within that threshold and 2) it builds up an automatic reserve, by saving any income amount over that minimum threshold and doling it out to "even out" your income so you can spend a bit more than you took in that month by dipping into your saved up balance, and 3) providing small, low or no interest, cash advances based on your earning history. The fee is currently set at $3/month.

In an article entitled: Regularized Income? There's an App for that  posted on May 5th by PMTS.com ^(R) as part of their "What's Next in Payments"^(R) series, they explain the need for this service and a bit about the app:

"The changing face of the economy in the 2010s is ... building a workforce increasingly detethered from the 'set paycheck, every 2-4 week model.' The sharing, or Uberized, economy is built largely around fleets of independent contractors. Apart from having paychecks that are, by design, variable – contract workers also usually do not have benefits or sick leave – meaning that illness (even minor) can seriously disrupt a worker’s financial life."

"The trend is becoming increasingly known as 'hidden inequality' and, unsurprisingly hits low-income earners the hardest. ....Day by day – and unexpected expense by unexpected expense – many irregular income (low income) workers find themselves without the cash on hand they need."

"PYMNTS has written extensively on the methods consumers use to fill those gaps ... And when it comes to finance, there are no shortage of options to choose from, from short term (payday) loans, P2P lending or crowdfunding — any of these avenues might work for a worker with inconsistent income —depending on one’s needs, goals and overall creditworthiness. And while they are all different, they all operate from an essentially similar premise of bringing in additional funds to cover costs in the event of a large expense."

"However, just outside of the San Francisco tech Mecca in Oakland, California, the team at Even is trying to solve this problem from a rather different direction. Even does not provide consumers with new funds – instead, it helps them control the income they bring in so that their cash flow is normalized, made more predictable and therefore, easier to plan around."

"The Even app is not quite out to market yet, as it is still in beta testing. The premise, however, is fairly simple. Users sign up for the app and hook it up to their personal bank accounts.'Everything else happens automatically,' Even notes. 'There’s nothing to think about, nothing to keep track of.'”

"The software then analyzes the user’s income and determines what their average bi-weekly (or monthly, depending on preference) income would be. When the worker earns above average, the app pulls the surplus into a separately managed Even bank account."

"'And when the employee has a slow week and their earnings are under average, Even replaces the difference in the user’s account so they still have that regular, predictable flow of money.'”

"When workers do not have sufficient savings in an Even account to smooth out the difference, the site may provide interest-free credit to cover the difference – though the mechanism or limits on that part of the platform seem to still be under development. The platform is also constantly updating what it knows about the user so that its averages are correct."

"'The app is also constantly learning and evaluating a user’s income – such that if a worker starts suddenly making a lot more money, or a lot less, Even will automatically adjust the average payouts."

"The service also offers users one-to-one guidance. 'Every user is assigned a personal Evener— a real person that you can talk to anytime you have a question or money problem you need help with.'"

What's Wrong with this Picture?

I haven't tried Even. I was stopped in my tracks by its request to give it the login and password to my bank account. That's not something I'm willing to do for a startup company I don't know much about.

But aside from the trust issue, it seems to me that the target market for this app is too narrowly focused. Based on our two decades of working with financial consumers in co-design sessions, I believe there's a huge market for a way to even out lumpy cashflow and deal with life's exceptions.

Even's target CONSUMERS are people in the service sector who work for a single employer. And, Even's target BUSINESS customers are the employers, like Starbucks, who take advantage of their workers by optimizing their work schedule week-to-week or day-to-day, making it difficult for workers to earn a steady, predictable wage (or to have two part-time jobs.) Even's value proposition appears to be that Starbucks (or any similar employer) could appear more caring if they provided the Even app for free to their part-time workers in order to "even out" these workers' cashflow. Perhaps the employer could extend credit and use that fact in its scheduling algorithm? (I hear echoes of "I owe my soul to the company store!"). That seems to be Even's REAL business model: Sell the app to the employers and let them distribute it as a benefit to their part-time staffers.

However, there are many people whose income comes from a variety of uneven sources; not just one part-time employer, but multiple contracts or projects or employers. That's the "Free-Former" target market that Zopa addresses with its peer-to-peer lending platform.

There are also retirees with a somewhat steady income from social security and lumpy income from a variety of investments, who are in need of automatic cash flow management.

THE BOTTOM LINE: Cash Flow Management IS a Killer App

 But I'm not sure that anyone has come up with the minimally viable product definition. It seems to me that our bank president client was on the right track when he posited an offering that combined pre-approving loans for existing customers, making it easy to sweep money from savings to checking and back again, and, at the same time, automagically generating a budget and a repayment plan based on the customer's ACTUAL income and spending.

If you're interested in the state of the market in budgeting apps today, here's a good article, Best Budgeting Apps in 2015, that covers a bunch of iPhone apps. My favorite is MINT; I like the fact that it tracks actual spending and makes recommendations for adjustments.