Overdrafts are Hitting Millennials and Minorities Hardest: Tech From Around the Globe Which Could Help Us Stay Out the Red

Millennials are earning a lot less money than their parents’ generation and coupled with a much higher cost of living in major cities in the US, young people are having to make an art-form out of managing expenditures. Yet, despite their best efforts one in ten still state that they are forced into overdraft at least ten times per year.

Daniel Schwartz is the Managing Director of Moven, a Fintech startup aiming to answer the new needs of the digitally enabled customer, creating a banking experience that connects to their lifestyle.

Despite the passing of a federal law in 2010 which was supposed to prevent consumers being  blindsided with exorbitant bank overdraft fees, new report shows abusive overdraft practices in the banking industry cost consumers nearly $14 billion in fees in 2015 alone.

To rub salt in the wound, a recent Pew Research study found that nearly 70% of card users would prefer to have transactions declined than to have them covered and incur a charge, and that young people and minorities pay the most in those sorts of fees.

In response to the Pew Research study the Consumer Financial Protection Bureau stated it would reevaluate existing rules on overdraft protection programs, and a number of banks including Regions and Santander have since been fined for misleading and overcharging clients. However, considering the three biggest American banks JPMorgan Chase, Bank of America, and Wells Fargo still charge overdraft fees, what new technology is coming that can help us avoid falling into the red, and paying through the nose for it?

Here are three innovative new apps from across the pond which are looking to expand to the US soon:

1) Intelligent Environments/Pavlok

If self control isn’t your strong point, and you often find yourself slipping under zero at the end of the month, British company Intelligent Environments has teamed up with Pavlok to create a product which could really shock users into living within their means.

The Pavlok bracelet appears like an innocent fitbit at first glance, but is programmed to give users mild electric shock if users stray into bad habits. Fintech company Intelligent Environments aims to promote better spending habits among users with its program which links the Pavlok bracelets to user’s online banking systems. If a user’s bank balance falls below a certain level, the wristband administers a shock to notify them, or turns down their central heating at home via Google thermostat Nest to save them money. Users can set the minimal level for their account, and set the programmed response too.

The partnership was announced in May of this year, and the companies are said to be in talks with a number of leading banks around the world.

2) Cleo

Bots are the talk of the tech town this year, with everyone from Mark Zuckerberg to Chris Messina bots heralding bot powered ‘conversational commerce’ as a potential game changer. But while use cases to date include ordering Dominos, buying clothes and ordering an Uber, Cleo is a bot which can help you save rather than spend money.

Cleo is a cutely named AI money-managing assistant which can be linked up to your bank account to help you keep track of your finances. Users can communicate with her using natural language input, asking questions such as “How much have I got left in my savings account?” to “How much money have I spent in Starbucks this week?” and the app can also create easy digestible visuals such as pie charts to show how much you are spending and on what. For those of us who need a nudge in the right direction, Cleo can alert users via text message about their daily spending, and when they fork out more than they should be, along with information about upcoming bills and payments.

The app has already partnered with a number of banks in the UK, but the startup aims to roll out internationally in the very near future, and is open to partnership requests.

3) Jude

Roughly 80% of Millennials split their funds between checking and saving accounts. With such an uncertain financial future ahead of us, putting aside for a rainy day is to be advised, but having split pots can make it more difficult to keep track of funds, especially when direct debits and credit card payments are thrown into the mix too. To solve this, New Zealand-based startup Jude has created a financial bot which can juggle funds between your accounts when you are at risk of becoming overdrawn.  

The founder Ben Lynch stated he created the app out of annoyance at getting high bank charges for being a few dollars overdraft, even when he had more than enough to cover the amount sitting in the next account. The app is currently in Beta, but the founder states he has had strongly positive responses from banks in New Zealand and is open to partnerships abroad.

Whereas most Fintech programs only work with individual accounts, Jude can be linked to multiple accounts and move around small amounts of money as needed. One of the most unique features of Jude is its ability to interact with a user’s calendar, allowing the software to send billing updates and transfer funds between accounts, as and when needed for regular payments such as credit cards, rent, or direct debit payments.

Despite federal legislation and financial watchdogs, America’s three biggest banks alone still made more than $6 billion in overdraft fees last year, accounting for $25 for every adult in the country. It appears that we can’t trust banks themselves to help us keep our accounts out of arrears, so it is time to turn to tech from innovative companies around the globe, to keep us covered from painful and costly surprises.