Californians lose billions of dollars every year playing the lottery, but what if you could get the thrill of playing lotto without losing a dime? That's the idea behind San Francisco-based fintech startup PrizePool.
PrizePool offers users high yield online savings accountswith 0.30% APY — 30 times higher than Bank of America’s basic savings — plus free virtual tickets to be entered in weekly and monthly cash prize drawings. The monthly grand prize is currently $10,000. While most people will win smaller amounts — between 10 cents and $500 this month — nobody ever loses.
In June, PrizePool raised $10 million in a Series A funding round led by M13 and seed investors Accomplice, Bling Capital, World Innovation Labs and Coatue, bringing the company's total funding to more than $14 million.
Prize-linked savings accounts date to the 1950s when the British government launched a post-war bond program that paid out interest via a lottery system. In the U.S., the concept was adopted by a Harvard Business School professor, Peter Tufano, in the late 2000s with a pilot program at a Michigan-based credit union.
PrizePool co-founders Frank Chien and Joe Woo learned about the lottery-savings model last year while listening to an episode of the Freakonomics podcast.
“You combine the excitement of the lottery, but with the safety net of a savings account. And that hit me really hard,” Chien said. “There’s this ingenious idea outside of the U.S., in the United Kingdom and other places, that I think could be amazingly powerful here in the United States.”
For Chien, PrizePool’s CEO, the mission is also personal. His parents immigrated from Taiwan and China and, like many Americans, lived paycheck to paycheck. Members of his family got into gambling, too, including sports betting and the lottery.
“That kind of impacted my life for a long time. Gambling was around,” Chien said. "Saving was a hard thing for us.”
Over the past decade, several prize-linked savings programs have popped up around the country. They’re usually tied to local banks and credit unions and offer account holders virtual raffle tickets based on the amounts deposited into their savings accounts, often one ticket for every $25 deposited for a certain period. PrizePool is offering one ticket daily for every dollar deposited.
“It incentivizes you to save at any amount for any duration,” Chien said. “We wanted to remove all of those barriers as much as possible.”
PrizePool is Chien and Woo’s second venture. In 2012 they founded an EdTech startup called LearnSprout which leveraged big data to help schools reduce dropout rates. They sold LearnSprout to Apple in 2015 for an undisclosed amount between $15 million and $100 million.
For many Americans, bank service fees can be costly and the minimum balances needed to waive them out of reach. Five percent of adults in the U.S. didn’t have a bank account at the end of 2020, according to the Federal Reserve. Black and Hispanic adults were more likely to be unbanked, at 13% and 9%, respectively. And more than a quarter of adults would struggle to handle a $400 unexpected expense.
PrizePool launched in August 2020 amid the covid pandemic, which “was very tricky in many ways,” Chien said. But the reality of last year's rising unemployment and widespread economic hardship also informed their decision to create a product aimed at helping Americans develop better financial habits. It now has 20 employees around the country, about half of them in San Francisco.
Tennessee-based Evolve Bank & Trust provides PrizePool with banking services and handles all of the associated regulatory requirements, including fraud prevention and FDIC coverage on deposits.
PrizePool is committed to keeping its main savings product free for users and will generate revenue through banking partnerships. A debit card will launch later this year and additional revenue generating products such as loans and credit cards could launch in the future.
PrizePool has already paid out more than $400,000 in prizes to around 10,000 users since launch, and 70 percent of account holders engage with the app weekly. One lucky winner in the Bay Area used his grand prize winnings to pay down his student loans, Chien said. And a nurse in L.A. donated part of their winnings to covid relief organizations.
As far as the California State Lottery goes, consumers spent $7.4 billion in fiscal 2019 and received a total of $4.7 billion in cash prizes, according an annual report published by the State Controller.
Sara Bloomberg is a San Francisco-based freelance writer.
