Money Jar

Personal financial management is one of those topics that sounds good on paper, but is typically so drab that most people lack the discipline to stick with it over time. This is in large part because the incentives are all wrong. Acting responsibly is a terrible motivator for the average Joe and Jane, and that’s what most budget-focused financial management tools boil down to. Thus most apps like Mint and Check.me have underwhelming user retention and engagement rates.

BillGuard, on the other hand, believes it found a solution to this issue by focusing not on budgeting, but instead on security and on saving money. The two-year old company uses big data analysis, combining anonymized insights from across its hundreds of thousands of users, to identify potentially fraudulent or otherwise unwanted transactions in a user’s bank and credit card financial statements. Founder and CEO Yaron Samid calls it a crowdsourced, algorithmic approach to saving consumers money. The end result is peace of mind and savings, two things that have, thus far, proven to drive user engagement.

BillGuard has identified over $50 million in “grey charges” in its users’ accounts, meaning deceptive, erroneous, and unauthorized credit and debit card charges. More than 1.5 million such transactions were identified in October alone. The opportunity to discover and act on these items leads the average BillGuard active user to open the app four times per week according to Samid, an engagement rate which he claims handily best industry averages, although he declined to share those industry rates citing the confidentiality of his competitor’s performance data. Samid added that BillGuard’s 90-day user retention rate similarly outperforms his industry peers. Unfortunately, without competitor data available, the best we can do is take his word for it.

For most of the last two years, BillGuard has been a Web only product, but the company released an MVP version of its iPhone app three months ago and saw most KPIs increase fivefold, according to the CEO. The app has a 5-star rating in the iTunes App Store and has grown to 250,000 registered users over the last three months, a figure which is growing by more than 3,000 users per day, Samid says. The app is currently ranked No. 1 in the Money Management and Finance Essentials categories in the iOS App Store, positions which not too long ago belonged to Mint.

Today, the company is releasing a significant upgrade to this app, adding more spending visualization tools doubling down on the existing savings value proposition. (BillGuard for Android is expected in Q1.)

“If you pay full price for an item where a discount is available, we consider that a data inefficiency,” Samid says. The CEO went on to describe the update as “what Mint should be today, and where the company was headed had it not been acquired by Intuit.”

BillGuard isn’t adding a standard coupon dashboard, daily deals marketplace, or anything else similarly trivial. Rather, the company is returning to its big data roots and analyzing a consumer’s historical spending habits for clues into where they could save money. For example, if a consumer regularly shops at Amazon, Staples, Starbucks or other mass retailers, the app will surface coupons. In most cases the company receives no compensation for coupon distribution or redemptions, but in a minority of cases it will collect a nominal fee, Samid says.

The key to delivering value under this model is to maintain a sufficiently high bar in terms of suitability, something BillGuard’s founder readily acknowledges.

“This is not an inbox with a bunch of deals, it’s an alerting system triggered when we identify something about your behavior,” Samid says. “We think of it as a shopping protection service where we help prevent you from paying too much. The most important thing is that it learns from your behavior and adapts over time based both on where you shop and which discounts you redeem and which you ignore.”

The major difference between the current generation of financial tools, BillGuard included, and the first-generation of products like Mint, is delivering actionable information. Alerting users to instances where unwanted transactions appear on their account or where savings are available for products they intend to buy adds real value, and thus drives habit formation.

“The first generation [of personal financial management tools] was all about beauty, the next generation is about beauty and brains,” Samid says.

BillGuard supports more than 5,000 credit card and debit card accounts including Chase, Bank of America, Citibank, Wells Fargo, HSBC, Capital One, BB&T, SunTrust, American Express, Discover, and PayPal. The app is free for use with up to two cards, while a third card can be unlocked through a simple social sharing action. BillGuard Premium is available as a one-time, $10 in-app upgrade and allows the user to add as many as 10 cards. Starting today, and running through Saturday (November 30) the company is giving all users free BillGuard Premium for life.

Premium upgrades is not the company’s long-term business model. Rather, once BillGuard reaches critical mass in terms of users and transaction data, the company plans to monetize around “ensuring trusted commerce,” according to Samid. He’s keeping details of the business model close to the vest, but one might envision a paid “BillGuard Trusted Seller” certification, akin to the way Energy Star certifies appliances and trade associations certify organic produce. BillGuard would naturally charge merchants for such certifications.

BillGuard takes a number of steps to ensure security of consumer data and their personal accounts. First, the company requires that users set a four-digit pin for their BillGuard account and encrypt all communication. Second, it only requires read-only access to card activity, meaning that neither the company nor the user can move money through BillGuard.

The company has also developed deep expertise in parsing otherwise messy financial transaction data, and has been issued three patents for doing just that. “It’s a clunky process at first, but once you do it at scale, you start seeing patterns, grouping cohorts based on spending behavior, and deliver actionable advice on what to do to save money,” Samid says.

BillGuard has raised a total of $13 million to date, with the most recent financing being a $10 million Series B round closed in October 2011. The company’s backers include Bessemer Venture Partners, Innovation Endeavors, Bessemer Venture Partners, IA Ventures, Founders Fund*, Khosla Ventures, SV Angel, and Social Leverage, as well as numerous angels.  The company has plenty of runway left, Samid says, but with growth already accelerating dramatically since the launch of the company’s generation one mobile product, he expects to seek out additional capital in mid-2014. The hope is that today’s upgrade will broaden the app’s appeal and bump up that timeline even sooner.

“Personal financial management is inherently very personal, and is dependent on human behavior,” Samid says. “The way I manage my money is very different from the way you manage your money. There’s real pent-up demand for tools to simplify personal finance management.”

By combining security and saving, BillGuard is able to appeal to an even larger and more diverse audience of consumers. And by starting with security and expand into savings, the company has been able to establish itself as credible and trustworthy, something that is hard to come by in the consumer discounting space.

“We were able to use security as wedge, which enables us to do smart savings without it feeling like advertising,” Samid says. “We’ve developed a trust-based relationship with our users that they know we’re using data to save them money.”

(* Disclosure: Founders Fund partner Peter Thiel is an investor in PandoDaily.)