Savings app Digit has raised $27.5 million to continue executing on its mission of helping people automate their financial lives.
"The core of our approach to making financial health effortless is this belief in automation," Digit CEO Ethan Bloch said in an exclusive interview with Cheddar. "How do you inject automation into every aspect of the customer's financial life so they don't have to go and make these decisions?"
This is a Series C round for the 4-year-old fintech startup. Venture capital firm General Catalyst led the round, as well as its Series A in 2015, which the firm's managing director Hemant Taneja said is rare for it to do.
"Our interest in a company over time changes from a bet on the founders to an understanding of the economics of the company," he said.
When General Catalyst first invested in Digit in 2015, it had just over 1,000 users, Taneja said, adding that he was struck by the company's passion for improving financial health for Americans who are hit harder by banks than the affluent customers they rely on for fee income.
Four years later, Taneja said the company has created and committed to a business model that pleases shareholders while still delivering on its mission.
"The way the team has scaled — with similarly minded people that are not taking any shortcuts, but are playing the long game for how to solve financial health issues — has remained consistent and has scaled," he said. "The business has found itself in a model that is aligned with the success of the consumers."
The San Francisco-based startup initially launched as a free savings app that would track users' income and spending patterns then automatically put aside a nominal amount of money for them every few days. In 2017, it introduced a $2.99 monthly fee for its service, an effort to become more self-sustaining, without selling customer data or introducing any lending or credit products that could be damaging for consumers' financial health.
Taneja described the move as bold and "incredibly courageous." Digit lost many customers that year to its competitors, but the company has grown more than 300 percent since it introduced the subscription fee, it said. Subscriptions are an increasingly popular monetization model today among many U.S. mobile fintech apps targeting similar non-prime customers, including Qapital, MoneyLion, Acorns, and Stash. Digit declined to disclose its total user count today.
"One of the biggest problems with existing financial services is they make money when people spend money," Bloch said. "We said if this [subscription model] doesn't work, maybe this wasn't supposed to exist or Digit isn't ready for it. But the world was ready to pay a membership fee for their financial health. They see and feel the savings and it's life-changing for many of them."
Amazon, Netflix and other major brands charging a monthly or yearly up-front fee have helped force consumers to really evaluate whether they're getting something valuable for what they're paying and if the cost is worth it to them.
Today Digit's fee is $5, cancelable at any time. Since its inception, the company has also launched savings bonuses, a credit card debt-reduction feature, and no-overdraft guarantee. The company says its users have saved more than $2.5 billion with the app across eight million savings goals. Digit also says in the last year it has made 250,000 automated credit card payments for its users totaling more than $20 million. Average credit card debt per U.S. household is $8,602, according to data from TransUnion and the Federal Reserve, collected earlier this month by WalletHub.
Citi Ventures is among the other participants in this round of funding. Banks have been navigating ways to appeal to customers, particularly younger ones, as fintech companies have brought more awareness about the importance of financial health and the potential to have more control over personal finances. Chase and Wells Fargo invested in teen-focused fintech app Greenlight this month for similar reasons.
"For every investment we make, we end up exploring partnership opportunities," said Arvind Purushotham, global head of venture investing at Citi Ventures. "We don't currently have anything signed with Digit, but we're excited about what we can learn from them and how we can partner with them in the future."
Digit plans to use the money from its Series C to continue investing in research and development and add new features to the product, though Bloch declined to specify exactly what. He said the company will spend on marketing, infrastructure, and increasing headcount, which is currently at 63, compared to 40 three months ago. The company has a goal to increase its size to 80 employees by the end of the year.