Affirm has launched a high-yield savings account, positioning itself to compete with neobanks
via Business Insider
Buy now, pay later service Affirm announced the launch of Affirm Savings, its high-yield savings account, earlier this week. The account comes with a 1.30% annual percentage yield (APY), no minimum threshold or fees, and an auto-deposit option.
Affirm is entering a crowded space where it will compete with big-name neobanks like Chime and N26, as well as Goldman Sachs’ digital offshoot, Marcus. The US personal savings rate reached a high last month as many consumers reported reduced spending due to lockdown measures, leaving them with extra cash to put away — and that makes it a good time for Affirm to introduce a savings account.
However, it enters a crowded space in doing so: Marcus offers a savings accounts with a 1.30% APY — more than double the national average of 0.06% — and neobanks like Chime and N26 offer above-average APYs too. What’s more, many neobanks have rounded out their product suites with robust personal finance management (PFM) tools.
Affirm’s strong brand and existing user base of 5.3 million could drive early adoption of its savings account. Affirm Savings is consistent with the company’s flagship lending product, which promotes shopping without racking up credit card debt: It enables installment payments without the late fees or compounded interest a credit card would charge.
Expanding its product suite to a savings account deepens that mission by encouraging customers to build up their savings with the incentive of a high APY. In communications with users who transact on the platform, Affirm can highlight the added benefits of using the savings account in conjunction with the lending service.
And Affirm’s strong focus on younger consumers could also give it an edge in the savings space — banks should focus on building out features that cater to this growing audience. Millennial or Gen Z consumers make up over half of Affirm’s user base, and it says its highly transparent and fee-free savings account was created with their preferences in mind.
Banks should follow Affirm’s example, as well as bolster their offerings with additional features that will appeal to the segment. For example, forty-seven percent of respondents to Business Insider Intelligence’s Master Your Money: Learn & Plan Survey say they currently have credit card debt, but an automated savings tool can help customers get in the habit of saving money and reach their savings goals.
If appetite increases for savings tools, adding PFM tools can allow banks to satisfy that while driving deposits, such as a feature that allows customers to visualize savings goals by displaying charts of an account balance over time — clear evidence of progress could encourage customers to further grow their savings.
