Chip: The app that's trying to trick you into saving money

Charmaine Batt first saw an advert for Chip on Instagram. She had moved in with her parents after a difficult house-share and was looking for a way to put a little money aside, while balancing payments to student loan companies and credit cards. When she saved in chunks in the past, the money always came back out again. Chip promised a different way, putting aside small amounts based on what she could afford.

Since Batt downloaded Chip six months ago, she has barely noticed the money, just £10 or £20, squirrelled away by Chip around three times a month. “I don’t miss it,” she says. “It feels like a normal transaction, like I’ve bought a round in Starbucks or something.”

That’s exactly how Chip founders Simon Rabin and Nick Ustinov intended it to feel. The pair previously founded Roamer, an app that allows people to make and receive calls abroad using their normal number over wifi, avoiding network charges. Chip, their most recent venture, joins the ranks of micro-saving apps hoping to appeal to millennials who need a different way to save.

“Chip was born out of this idea where I noticed my friends and peers found it really difficult to save,” Rabin says. “The more we looked into it the more we found our lifestyles are more reactive than our parents are. I decide what I want for dinner when I walk past Tesco Express, rather than doing a weekly shop to a budget, so weekly savings don’t work as well because I don’t spend the same each week. Chip reacts to your spending.”

The app analyses the user’s transactions to build an individual, average spending curve. Every two to three days, it monitors what that person is spending in relation to their average. If the user is spending less, it puts the difference in a savings account within the app, where it accrues interest.

Chip, which launched in October, is one of many so-called microsavings apps in an already crowded marketplace. Oinky has adopted a similar approach of calculating how much users can safely afford to save based on their recent spending. Folio links to the users’ debit card to help the save towards a particular goal, while Squirrel helps users plan their savings strategy.

Banks are launching their own apps. HSBC is trialling a SmartSave app that could allow savers to round up spending to the nearest pound, like an online change jar, while Nationwide’s Impulse Saver encourages customers to make spontaneous savings.

Banks will face increasing competition as legislation governing third-party apps is loosened. In 2018, the Revised Payment Service Directive, or PSD2, will remove banks’ monopoly on their customers’ account information and payment services. This means customers will be a able to use third party apps like Facebook and Google to pay bills and friends, or to analyse spending, while the money is still in the bank’s current account.

The change will make it even easier for apps like Chip to challenge some of the most expensive bank charges, such as those associated with overdrafts. Chip has already introduced a feature that allow users to save even when they are already overdrawn. “You don’t want to be in your overdraft, but 40 per cent of people use their overdraft every single month. That’s 20 million people,” Rabin says, adding that 7.5 million people never get out. “They live in that cycle, so what overdraft savings does is give you a method to break that cycle and get out of it.”

Overdraft fees can be almost eight times more than the cost of payday loans, according to research by Which?. Around a fifth of current account holders have unarranged overdrafts, which can charge up to £180 for a loan of £100 over 30 days. But banks have a vested interest in keeping the rules murky. Unarranged overdrafts generated £1.2bn of revenue for banks in 2014 alone.

“There’s going to be a big expose of the banks and what they are doing with overdrafts,” Rabin predicts. “It’s about perception, the perception that an overdraft is just a flexible feature of bank accounts. Actually it’s fuelling the whole of the UK banking system. Why do you think current accounts are free?”

Millennials are particularly likely to make use of their overdraft, Rabin says, because they think other forms of lending, such as credit cards, are more dangerous. By helping people to save even when they are overdrawn, Chip says those with free overdrafts can save interest on that money by continuing to put aside small amounts. Once enough money has accrued, it can be transferred back to the users’ current account to pay off the loan. Chip also offers users an extra one per cent in interest on their savings if they recommend a friend who signs up, up to a total of five per cent interest, which is a higher rate than many other current accounts.

In future, Rabin says Chip wants to offer its own overdraft that is transparently priced and automatically pays itself back using the savings algorithm. “Eventually we would like to make our money by offering better banking products than the banks do with an emphasis on the customer,” Rabin says. For the moment, Chip is backed by angel investors.

Batt agrees that millennials are more cautious about money than the stereotypes suggest. “I wouldn’t say millennials are bad with money. Sometimes it feels futile to save towards things or set goals. You have stagnant wages, money is worth less because of inflation, then there are student loans. House prices are going up and living on your own seems impossible,” she says.

She also likes the “cute” Chip app - company marketing is littered with emojis - and feels it makes sense to save through her phone, which is where she organises her life, from calendar apps to payment apps with friends. She only wishes Chip was more transparent about how it calculates her spending, so she herself could work out how and why she sometimes spends more than others.

Just using Chip has made her feel that saving money is possible. “I do worry about money,” she says. “I don’t want to live with my parents forever.”