Getting rich slowly is latest fintech trend

When people consider installment savings - a product requiring regular deposits over a predetermined period - they need to be committed and take it seriously.

Monthly minimums traditionally start at about 50,000 won ($44.80) and go as high as 1 million won, though the accounts pay higher rates than demand deposits or current accounts.

Many sign up for installment savings when they are putting money away for major purchases or events, such as a house or getting married.

The savings trend is evolving to be more inclusive and attract younger customers with less money. Major banks recently rolled out microsavings products, which allow users to deposit only several dollars a week.

The basic selling point can be best understood with the expression “many a little makes a mickle,” which means many small amounts accumulate to make a great sum.

To serve the younger consumers, banks are adding entertaining components to their services and designing them to be completely accessible via mobile devices.

26-week challenge

The phenomenon began when Kakao Bank, the country’s largest internet-only bank, released a product dubbed the 26-Week Installment Savings plan last year.

The product allows for five deposit minimums - 1,000 won, 2,000 won, 3,000 won, 5,000 won and 10,000 won. The amount increases by the initial value every week for 26 weeks. So if a customer chooses the 3,000 won option, the second-week savings amount will be 6,000 won. In the final week, the customer will have to put away 78,000 won.

The accumulated principal will total 1.05 million by the end of the 26-week period.

The product immediately took off as it attracted more than 300,000 users within 15 days of launch. The figure passed the 500,000 mark in October. As of last December, the total was 580,000.

A spokesperson at Kakao Bank said that the product was most popular with customers in their 20s and 30s account and the most popular initial deposit amount was 3,000 won.

“Younger people sign up for 26-Week Installment Savings to achieve different goals,” the spokesperson said.

The goals were often related to travel, dining and shopping. According to a survey by the bank, traveling was the top reason for savings.

There is no penalty for withdrawing from the program early, and the product is guaranteed by Korea Deposit Insurance Corporation. Those who break the agreement early will, however, be paid a lower interest rate, with 0.3 percent for those staying in less than three months and 0.5 percent for those staying in between three and six months.

Kakao Bank app shows progress of the 26-Week Installment Savings product. [SCREEN CAPTURE]

10 minutes to get started

Peer pressure and social networking seem to, in part, drive the popularity of the program. Many microsavings users enjoy uploading their experiences on social networking sites.

A search of “26-Week Installment Savings” on Instagram yields more than 1,000 postings, most of which celebrate the completion of the savings program.

For existing Kakao Bank savings customers, the Kakao mobile-banking app lists savings and loan products on the side menu bar. With a tap of the 26-Week Installment Savings button, a registration pops up and leads the customer to the terms of contract page.

The terms explain that fake-name transactions are banned and review the Depositor Protection Act. Once the conditions are accepted, starting deposit amounts can be selected.

If the 1,000-won option is chosen, the amount increases by 1,000 won a week. The app then shows the value at maturity: 351,000 won and 1,422 won of interest before tax. The final step is to choose a savings account to be used for withdrawal as a challenge.

The account needs to be a Kakao Bank account.

After tapping the next button, the final confirmation message appears, showing the beginning amount, the weekly withdrawal day, the maturation date and the interest rate.

Recently, the app showed an interest rate of 2.1 percent, slightly higher than the market. According to the Federation of Korean Banks, the average rate for a six-month installment savings is 1.7 percent.

In a test run conducted by a reporter, the entire sign-up process took about 10 minutes.

One interesting feature of the app is that Kakao characters are used to show the customer’s progress in meeting their savings goal. Whenever a deposit is made, an emoticon will be added.