Chip’s new chatbot app points the way to ‘plugin banking’

When London fintech startup Chip launched late last year, the company’s vision was something a lot more ambitious than a simple ‘micro savings’ app delivered through a millennial-friendly chatbot. Instead, the plan was always to become a fully-fledged banking app that ‘plugs’ into your existing bank accounts and adds a raft of new functionality to help you make the most of your money. A significant update to Chip rolled out today begins to see that ambition become a reality.

In addition to helping you save small pots of money based on what Chip’s AI deems you can afford, the chatbot app has added spending insights and a clever new feature to help you pay off your overdraft. I’m also told the company plans to launch “Smart Credit” later this year to replace your bank’s overdraft facility altogether.

“Chip is the ‘plugin banking’ app that sits on top of your current account and does the things that actually help you with your money,” the startup’s CMO Alex Latham tells me. “We are tackling three of the biggest problems young people face: the inability to save money, the difficulty of tracking spending… [and] the problem of getting stuck in a cycle of debt and paying a premium for it”.

Specifically, Chip’s new pay off your overdraft feature is based on the premise that many people don’t consider an overdraft as debt, in part because it is marketed by banks as “available funds” and, since it doesn’t sit separate from your main bank balance, is almost indistinguishable from your own cash.

“Chip’s first step to help people with their overdraft is to let them save to get out of it. By its very nature, you don’t actively pay it back, you can just aim to go less overdrawn this month than last month. But all the while, your bank account shows your overdraft as “available balance” so it feels like the money is yours, and getting out of that cycle is incredibly difficult,” says Latham.

To counter this, Chip alerts you if you are into your overdraft and lets you know the average amount you borrow each month and what it is costing you. It then puts its savings algorithm to work — the same one that powers the existing micro-savings functionality — with the goal to build up savings equal to your average monthly overdraft. Once that goal is reached, you are prompted to clear your overdraft in its entirety.

“The user has the option to save with Chip while overdrawn, putting aside a little bit of money every few days until they have enough saved up to pay off all of their overdraft debt in one go. Chip then notifies the user and gives them the option to deposit money back into their current account. Goodbye overdraft!”.

Meanwhile, “Smart Credit,” which is pegged to launch in July, will attempt to wean you off an overdraft facility entirely by essentially replacing it, albeit with a less expensive and more manageable form of credit. According to the company, the way it will work is as follows:

Every time your current account balance drops below £0, Chip instantly loads your current account with £100 of Smart Credit. The money is yours and Chip gives you all the information you need to spend sensibly, at your finger tips.

Smart Credit repays itself automatically at a rate you don’t feel. It uses the Chip algorithm to analyses your transactions and gradually repays what you owe. You don’t need to do anything.

If you’re having an expensive week, Chip knows and pays back less. If you can afford to pay back a little bit more, Chip will increase your repayments automatically.

“Everything Chip does is based around these three fundamental problems which we face and offering a better UX for your money, all in a slick chatbot interface,” adds the Chip CMO. “We strongly think that the answer to these problems come from a better banking app which doesn’t force you to change bank”.

In other words, according to Chip, ‘plugin banking’ is where fintech’s future lies.