Tools for saving: using pre-paid accounts to set aside funds

1. Description of the programme
2. The study
3. What are the outcomes?
4. Key findings
5. Points to consider

Description of the programme

Having liquid savings may be important for consumers with irregular income flows that may not match up in timing with expenses, or when shortfalls in income or unforeseen expenses occur.  Saving is especially difficult for those consumers living ‘paycheck to paycheck’.

This programme encourages saving on a pre-paid card (the American Express Serve Pre-paid Card) - a spending card that is pre-loaded with funds rather than settled in arrears as a standard credit card would be. This provides an opportunity to test whether certain interventions may drive consumers to make use of the built-in saving function.

The study

This large-scale study of 540,000 American Express Serve pre-paid card holders explores the use of the card’s ‘Reserve’ set-aside feature. The study addresses two questions:

• Can certain strategies encourage consumer saving behaviour?
• Is saving behaviour associated with better outcomes for consumers?

 The research goals were to:

• Gain insight into consumer savings behaviour and identify practices that promote savings behaviour over the short and medium term among pre-paid card users;
• Evaluate the short-term and medium-term impact of saving on consumer wellbeing among pre-paid card users.

Four different strategies were tested over a 12-week period: encouragement to save via e-mail; encouragement via direct mail; promotional incentives; and automatic transfers. Results were tested against a randomised control group of card holders who received no interventions to encourage saving. The main component of the study was the analysis of customer account data, and a follow-up customer survey was undertaken nine months later to understand whether any changes in savings behaviours were lasting (especially among those who are under-served and/or have low incomes).

What are the outcomes?

• Whether certain strategies encourage consumer savings behaviour;
• Whether savings behaviour is associated with better outcomes for consumers – especially those that are under-served and/or have low incomes;
• Practices that may encourage savings behaviours among pre-paid card users;
• Short and medium term impact of saving on consumer well-being among pre-paid card users.

Key findings

The programme tested different approaches to encouraging saving among pre-paid card holders – consumers who are generally from lower income households or have limited access to financial institutions and their services.

The four strategies listed above were tested either in isolation or in combination, and the analysis of customer account data found that:

• Treatment e-mails created spikes in enrolment activity, with three single dates accounting for 20.7% of enrolment among the study group in the first 6 months;
• Success was greater among active, rather than inactive, card holders;
• Mailing (as opposed to emailing) did not generate spikes in activity;
• All four treatment sets with an incentive showed the highest levels of enrolment. This effect was greatest for incentive + encouragement to save via e-mail, and incentive + encouragement to enrol in automatic transfers;
• Active card holders receiving only the incentive e-mail showed an uptake at 115% of the control group. Other treatments achieved lower but still positive results.

 Two longer-term positive outcomes emerged in the nine-month follow-up analysis:

• Balances generally did not decrease even after the end of the treatment period. This was indicated because non-zero balances were remarkably constant throughout the remainder of the year;
• Payday loan usage fell significantly; those that had received the $10 incentive were 19.5% less likely to have taken out such a loan than the control group members. In addition, pilot participants who had received e-mail messages with a combination of incentive + encouragement to save + encouragement to enrol in automatic transfers were 40% less likely to use a payday loan in the following period than the control group;

These findings suggest that simple low-touch methods of encouraging the uptake of a savings feature on a pre-paid card may prompt customers to take action to reduce the use of high cost sources of credit. In particular, offering customers a $10 incentive for using the savings feature during the 12-week trial was highly effective at encouraging take-up.

Points to consider

• Generalisability: results suggest that incentivising pre-paid card customers to save, and providing an opportunity for them to do so using a savings feature that earmarks funds for saving, could provide tangible financial benefits.
• Applicability: despite the comment on generalisability, the findings may be unique to the population of Serve cardholders and may not translate to other pre-paid card holders or users of comparable products from other institutions.

Full report

Tools for saving: using pre-paid accounts to set aside funds - full report