Millennial spin on PFM: A savings app for student debt

For many millennial clients, student debt is the big hurdle to overcome in their financial lives. Fintech firms are busy developing new digital tools for advisors to help young clients manage their loan repayments.

One bank sees it as an opportunity to woo millennial customers and compete with megabanks for consumer deposits.

Cincinnati-based Fifth Third Bank is set to roll out a stand-alone app designed to help its customers pay student loan debt. The app, called Momentum, lets customers link Fifth Third debit cards to student loan accounts held by more than 30 servicers.

Customers can have their debit card purchases rounded up to the next dollar, or have a dollar added to every purchase; the money is applied weekly to the balances on designated loans once a minimum of $5 is contributed.

Granted, fintech apps such as Acorns, Digit and others already let consumers link checking accounts and round up purchases to send the excess change to savings accounts, investment or credit card accounts. Some banks also offer similar services to help younger consumers build up savings.

But Fifth Third, which does not make or refinance student loans, says its app is different in that it is solely designed to lower student debt and has other special features, said Melissa Stevens, the $141 billion-asset bank's chief digital officer.

Momentum can be complementary to apps such as Acorns and Digit, she said. “This [millennial] generation is sitting on $1.3 trillion of [student loan] debt. We wanted to take a relatively simple concept and offer something to help them in their day-to-day life.”

'A BIT EDGIER'
Momentum is part of Fifth Third’s wider efforts to attract and retain more millennial customers; those efforts have included a rebranding campaign this year to promote "a bit edgier" image, Stevens said.

“We’re underindexed in the millennial generation, and while we strive to serve all of our customer base, we want millennials to grow with us financially and look to us for their future financial needs,” she said.

This strategy is a smart way to try attract new accounts and increase deposits against stiff competition, said Stephen Greer, an analyst in the banking group of the research and advisory firm Celent.

There are some services that use different methods to help pay off student loans, including ChangED, a fintech app launched this year, and Gradifi, a Mastercard rewards card issued by Radius Bank of Boston, which offers 1% cash back toward student loans. Both feature small fees; Stevens said that Momentum is free, and also allows graduates’ family members to help them out by signing up with their own Fifth Third debit cards.

Stevens said Momentum is also more “seamless” for its customers to use than third-party auto-savings or microinvesting apps because once they download it and log in (using the same existing credentials they use to log in to the Fifth Third mobile app), their banking information is automatically imported. “We wanted to make it as easy to use as possible,” she said.

GAMELIKE FEATURES
Stevens said the decision to make the service a stand-alone app, as opposed to embedded within the bank's existing mobile app, was made in part because younger consumers are already accustomed to using separate apps to help them manage finances. Momentum also includes gamelike features; customers can earn badges, called #Wins, for continuing to stick with their new savings habit, Stevens said, along with “nuggets of financial information and tips” as well.

Celent's Greer was skeptical that the app could help borrowers make a big dent in their student loan debts, as the average amount saved with similar budgeting apps is not huge; one estimate puts the average savings of a Digit user at $80-$170 per month. For its part, Fifth Third estimates that customers who round up only $25 a month using its app could pay off a 20-year loan three years sooner and pay 8% less in total by avoiding interest that would have accumulated.

But for Greer, the bigger picture with Momentum is that it could help ingratiate Fifth Third with millennial customers.

“It’s a great example of an institution looking at the market and seeing what’s innovative and applying it to their own business model,” he said.