Prize-Based Savings: Product Innovation to Make Saving Fun
What if winning prizes while saving money could transform saving into something exciting? Linking the fun of winning cash and prizes with the virtues of saving money, prize-based savings is a new concept in the United States, but is an ancient and common practice around the globe. Ironically, another prize-based activity with few virtues – gambling – is already a billion dollar industry in America with a large customer base playing state-run lotteries and visiting destination gambling sites. In contrast to gambling, prize-based savings accounts provide the opportunity for significant upside winnings without any principal loss on deposits; an account-holder is simply "betting" their monthly interest in order to have the chance to win higher value prizes.
With this in mind, in October 2006 Indiana-based Centra Credit Union launched "Super Savings," the first ever prize-based product in the United States. Working with Harvard Business School researchers and funding support from the Filene’s Research Institute and Affinity Plus Credit Union, D2D assisted Centra in the pilot testing of Super Savings. Key highlights from the experience include:
- Customers want the product. In initial customer intercept research, over 58% of those surveyed in Indiana expressed an interest in the product. Even with limited marketing, Centra opened over 1,300 Super Savings accounts and amassed over $500,000 in deposits within three months of launch. This represents 1.3% of the Centra member base in early 2007.
- The product hits the non-saver target. Based on the customer intercept research, the likely buyers are people (a) who are heavy lottery buyers, (b) with virtually no savings, (c) with no savings plan, and (c) with optimistic expectations about their future.
- Deposits in the product were fairly sticky. Additionally, most customers were maintaining their deposit balances in the product following the first three months of the launch.
- Prize-based savings requires consistent marketing. Facing competition from heavily marketed alternatives like state lotteries and riverboat casinos, prize-based savings products require innovative marketing programs.
- The legal restrictions on prize-based savings are substantial. In the current environment, US programs are most likely to be structured as sweepstakes with "no purchase required," given state monopolies on lotteries.
Since the launch of Centra’s Super Savings, two more credit unions, ELGA Credit Union and FORUM Credit Union, have begun offering prize-based savings products with promising early results (See Appendix B).
Even with these product launches, opportunity for innovation remains. The most appropriate credit unions to lead further work on prize-based savings products will likely be:
- pursuing growth – looking for new ways to attract new members or increase deposits;
- seeking change – trying to invigorate a more traditional and standard product offering; and
- reaching down market – interested in having a broader impact on low-to-moderate income ("LMI") savings behavior.
D2D Fund, a nonprofit organization based in Roxbury, MA, is committed to continue to research this product and to support financial institution partners which seek to develop and launch prize-based products that meet the needs of their members and, in particular, appeal to LMI customers. The mission of D2D is to expand access to financial services, especially asset building opportunities, for low-income families by creating, testing and deploying innovative financial products and services.