By Mariele McGlazer
Prize-linked savings. If you haven’t heard the term floating around by now, here’s an introduction:
Prize-linked savings (PLS) programs give customers the chance to win a prize by simply making savings deposits. The goal of PLS is to bring some fun and excitement into the otherwise difficult and even daunting task of building up savings.
In the U.S., credit unions were the first to run with this idea—today there are two competing multi-state credit union products, as well as a number of products managed by individual credit unions. But others are starting to catch on. Walmart launched a PLS feature called Prize Savings on its MoneyCard prepaid product a year ago, and fintech startups like Long Game are entering the picture as well.
Yet, at last count, there were still only three community banks in the country offering a PLS account. Bankers remain hesitant to adopt prize-linked savings for a range of reasons, including:
- Lingering concerns about regulatory challenges (even in states that have passed laws permitting PLS)
- Skepticism of the business case for PLS
- A perception that the concept is too “gimmicky” and that lottery-style fun and prizes are at odds with the seriousness of banking
While PLS may not suit every bank’s needs, here we look at one of the banks that has adopted PLS. Community Bank, based in Washington and Oregon, launched their Win-Win CD product at the beginning of 2017. Win-Win is a 12-month CD in which each $25 increase in month-over-month balance earns accountholders an entry into a drawing for $100 monthly prizes, as well as an annual $1,000 grand prize. The account also earns interest at a variable rate. Here are some insights Community Bank shared about their experiences designing and launching Win-Win.
Community Bank built a strategy to secure buy-in for the PLS opportunity.
Once PLS-enabling legislation had passed in both Washington and Oregon, Community Bank’s marketing department became particularly interested in the opportunity. They are always looking for ways to be fun and engaging, and they had often been disappointed at the limited opportunities available to leverage incentives to excite customers. To make PLS a reality, they started working across the bank to make their case.
The bank’s marketing manager spearheaded the effort to launch Win-Win in close partnership with the compliance department, which conducted the required due diligence and remained in close contact with outside auditors and regulators. They coordinated across bank departments to create a streamlined plan for extracting and managing the necessary data from the bank’s core system.
With a plan for a compliance strategy, a back-office process structure, a prize model, and a proposal to build off an existing CD product without any special rate bump, Win-Win gained final approval from Community Bank’s executive team. The timeline from idea to launch took about a year.
Community Bank’s effort to stand out from the crowd.
For Community Bank, offering PLS is seen as a way to not only bring in new business and stand out among competitors, but also send a clear message that they are living their values as a community bank. “With our tagline of ‘Local Money Working for Local People,’ we saw it as a branding opportunity to show that we are encouraging and awarding people to become more financially sound,” said Leah Johnson, Community Bank’s marketing manager.
Funding for prizes comes from the bank’s advertising budget—the marketing department views Win-Win as an opportunity to bring new people into the banking system and attract them to other products. The account was designed to be as accessible as possible, with an opening minimum of just $25.
On top of external advertising and promoting the accounts to all new customers, the bank expects that the word-of-mouth excitement generated by prizes will continue to draw new attention to Community Bank and its offerings. It’s too early to say how the account will perform from a profitability perspective, but Community Bank remains enthusiastic about the possibilities.
Existing bank systems can adapt to incorporate and manage PLS.
Community Bank’s marketing department put in a lot of legwork up front to ensure they had the structures in place across the bank to manage its PLS program. This required effort and coordination, but banks don’t need to reinvent the wheel to be able to offer PLS. There is plenty they can do to work within existing systems and adapt core processor functions, using internal or vendor resources.
For Community Bank, it was important to automate the required data processes to be able to show that running the program would not require too much manual staff resources to oversee.
Equally as important to this initial design is the ability to adapt, based on feedback from internal stakeholders and from customers. For example, Community Bank plans to adjust its early withdrawal fee structure and modify disclosure language, based on feedback from the first six months of offering the product.
Given that PLS is a relatively new product for banks to offer, it’s important for them to build in ways to collect feedback, incorporate suggested changes, and create the best possible product for their institution.
Win-Win CD provides an example of how individual financial institutions can independently launch innovative savings products that suit their business needs while exciting customers and supporting their financial security. PLS may not be the answer for every institution, but Community Bank is forging a path for community banks interested in learning more about how it might work.
Mariele McGlazer is a senior innovation strategist at Commonwealth, a national, mission-driven organization that strengthens the financial opportunity and security of financially vulnerable people by discovering ideas, piloting solutions and driving innovations to scale. Email: Mmcglazer@buildcommonwealth.org