I started a company to put the lottery out of business and help people save money. We've helped over 500,000 people and given away over $8.5m in prizes. AMA about the psychology of the lottery, lottery odds, prize-linked savings accounts, or behav...

A lot of people here seem suspicious of your business model. It feels generally too good to be true.

My question is if this model works for you, why isn’t everyone doing it?

It's just a gamified version of interest. Though admittedly pretty good interest compared to some banks.

Yes this is right.

Our business model is very similar to that of consumer banks. There are many consumer banking products. We just offer this product with a unique spin.

Yeah I tried starting this business in college and was pretty much told by banks, angels, even the college that this was unprofitable and has some legal issues with users. This was three years ago

What were the reasons given? Doesn't make sense to me.

They are stealing from people with susceptiblity to a gambling addiction.

Not true at all.

I signed up for Yotta after your last IAMA because it sounded interesting, but honestly after a couple of weeks of interest it was terribly underwhelming. I won a total of $1.90 over the ~5 months I had my money ($2000) in my account.

Obviously I didn't expect to win tons of money, but getting an email each week saying I'd won 15¢ was just a bit lame. It sounds backwards but I think not winning anything would have been less frustrating! I know you don't have the scale of the big lotteries, but I think winning $10 occasionally as a bonus would be more satisfying than 15¢ a week.

Do you hear the same sort of feedback from other users (maybe I'm an outlier), and do you have any plans/ideas on improving the overall experience?

Yeah we hear this. We've thought about skewing the prize distributions less, but unfortunately with a product like ours, there will be periods where people are unlucky (like your experience). Any feedback on your end or suggestions for how we might be able to improve this?

Maybe change the drawings to weekly. I stopped looking at the daily notifications.

Got it - thanks for the feedback.

So how does Yotta make money as a company?

We earn yield on our deposits and also make money on interchange from debit and credit cards. Very similar to how banks generally make money.

the average household spends over $640 every year on the lottery.

Wait, REALLY?

I'd love to see some sauce on that figure, that's insane if true.

It's actually more now and was $640 a few years ago!

Total lottery spend in 2021 was $105.26B (https://www.statista.com/statistics/215265/sales-of-us-state-and-provincial-lotteries/) and total number of households is 130M (https://www.statista.com/statistics/183635/number-of-households-in-the-us/)

That comes out to $800 per household! Lottery spend has gone way up in the last couple of years.

That's average, which means some families are spending shit-tons to drive up the average for all the families that don't play at all.

Yeah on average. Not a median.

It's $12 a week per household, anecdotally it certainly fits my parents habit of £10 on the lottery each week.

Yeah that's exactly right.

Keep in mind that this is an average, not a median or mode. A few outliers could really inflate that average.

Yes very true.

That's slightly above $50 per month

Yes that is right.

Hi! I've never played the lottery myself, but I did receive a small scholarship to university that was funded out of the South Carolina state lottery. If we eradicate the lottery, is the expectation that states will meet the shortfall out of general taxation or just no longer fund these small scholarships?

If the lottery was abolished, that would be $50B+ US consumers would have in their pockets (lottery spend net of lottery winnings). The state lotteries are an inefficient taxation scheme. There's a lot of overhead for that $100B before it actually goes to state programs.

I feel better about putting that $100B right back in people's pockets rather than the government generating tax revenue on it.

It’s been said that lotteries are a tax on people who don’t understand statistics

And people who do as well. Gambling is sadly so deep rooted in our psychology. Hard to overcome even if you know you're likely to lose.

Mississippi just got their state lotto approved a few years ago. They codified it into the rules that the initial profits go to infrastructure immediately. We met that goal within like two weeks of the lotto opened. They fixed almost all the roads in my town with that money. I like the idea of your program and will look into it. Just wanted to say lotto could be good if it's properly executed.

Lotteries can be fine if people don't spend more than they can afford to lose on them. I worry about the families that got good roads, but lost a ton of money by buying lottery tickets.

Some people will benefit, and some won't. If you don't play the lottery at all, you get all the benefits of the infra spend without any cost.

I can see your point. My area is rife with gambling addiction. Anything that would put more money into the school system is a good idea. I'm sure there is a lot of overhead involved with the state lottery funding education.

Agreed, but would rather the families not lose the money in the first place. You lose 50%-60% on average on lottery tickets.

Yeah, our lottery funds our educational system here.

The issue is it funds it by many people losing money on lottery tickets who need the money. Very circular.

Some of my friends fall in the category of low earners but tend to spend more on the lottery than many others.

What approach do you guys take to overcome the psychology behind an addiction to lottery gambling?

We give people the chance to win big, without any risk of loss. You can dream of winning the jackpot, have the excitement of numbers being drawn, and even if you don't win, you don't lose. That is the key part. It scratches the same itch in a safe way.

Satisfies the craving.

Thank you!

Do you know of any resources on behavioral economics related to gambling that you recommend?

I’d like to read more about it when possible.

Gambling specifically not really. Behavioral economics books: Influence, Thinking Fast and Slow, Nudge are some of the best.

If no one has won the $10m prize yet, what’s the biggest prize someone has won?

No $10m winner yet, though on expectation it should happen and isn't that unlikely over the next couple of years. We have had many winners of $40k.

"Many" is pretty vague, can you give an actual number? Or at the very least an estimate?

5, they show a list of the top 5 winners every week and 5 people have won the 40k

Yeah we try to be transparent here.

What is your opinion of Arcade claw machines and do you believe that it has a impact on kids gambling later in life when they play them early on?

I don't think they're a problem. Paying for entertainment is fine. I don't think these machines are precursors to a gambling addiction. If they are, then that's a problem.

If someone wins a prize, are they then ineligible to win again for a short amount of time? Does your algorithm prevent someone from winning multiple times in a row? Or could someone, if they were reeeeaaally lucky, win back to back?

No it's totally independent. Winning once does not impact your ability to win again.

Any plans for helping educate any winners of large jackpots ($100k-10M+)? Most people lack proper financial education to handle large windfalls of money.

We are working on improving our blog to help educate lottery players on these types of things. It's true that many big lottery winners end up going broke.

Will the prize pool payouts be updated with the increase in interest rates?

We are looking into this now.

I've been using yotta for quite a while now and have referred over 10 people to use it. On average yotta has given me a better interest rate than any other HYSA. This coupled with the possibility of winning big prizes makes it a no brainer for me.

u/yottasavings I do wish you would increase the point at which you start getting less tickets per dollar. It becomes a much lower ROI to put anything greater than $10000 in my account at the moment. Are there any plans to increase this value to incentivize users to put more than the current limit(before diminishing returns) in their accounts?

Yes we are evaluating this right now. I can't make any guarantees here on what the outcome will be, but it's something we are actively looking at, so stay tuned.

Can parents open accounts for kids?

Yes they can

Wait I didn't know this! Will referrals count for setting one up for both of my kids? I need 2 referrals to go up a tier!

Yes - anyone who signs up using your invite code and makes a deposit will qualify as a referral!

Is this just a savings account? What about checking? How long does it take to transfer money in/out of the account?

We have both savings and checking. Transfer times can be 1-4 business days to deposit into the account, depending on the user. Withdrawing out is typically 1 business day, but we have instant withdrawal options as well.

How much Profit did you make compared to what you 'gave away'?

We are giving all that we earn back to users, so we are not making any profit. So $0 profit vs. $8.5m given away.

This may be a silly question, but if that's the case then why does your company exist? Is it a non-profit org? Pure altruism? Or do you all still earn a hefty salary but it's the "company" that keeps no profit?

We are focused on delivering a great product experience and growth right now. Like many startups, that can result in no profits earlier in the company lifecycle. Not unusual at all.

$0 profit. So are you a non-profit or simply a company currently growing and reinvesting anything that would be profit?

We earn revenue on other products; for example, interchange on debit and credit card spend. However, we are highly focused on delivering a great product experience and growth right now, which is very typical for a startup at our stage.

1. Do you find that people are more willing to go for a credit card with a 1:50 chance of any given purchase being paid for over a 2% cash back card? Do you feel that people do not realize that they should "expect" about 2% cash back equivalent from those odds?
2. Have you had situations where someone winning the $2500 prize (split among all winners) is paid out more than someone winning the $3000 prize? (this happened in simulation a few times for me)
3. Is it possible to find out how many tickets are in play for any given week?

1) Yes there's a big chunk of people out there that prefer 1 in 50 vs 2% guaranteed. I think they prefer it even when they know on average it's the same value. It just adds some fun to life.

2) I am not sure off-hand to be honest. It certainly is possible. We are going to re-evaluate some of these bigger prize levels soon.

3) We don't disclose this - sorry.

I meannn where are you getting the 4% interest money from?

That is the maximum that can be made on average, through our non-FDIC insured product offering by holding USDC. Our core product is the FDIC insured account.

So the base APY is 0.20% and you can never make less than that, but you can make up to 4%? Am I interpreting that correctly?

I'd be curious to know what the actual average APY is across all users, not just the maximum.

Average APY on USD is ~1.5%

So you take user funds, buy crypto (USDC), stake it and then pay the yield returns forward?

We have lending partners that lend to institutions to earn yield. Different than staking.

I was interested but then I looked at your reviews and a ton of people love the idea but say ur app is super clunky? And customer service was an issue?

We doubled our customer support capacity in June. It's a huge focus for us right now.

I think our app can be confusing, and we need to work on simplifying it. But for the most part we find people leave us great reviews. There's certainly a lot of room for improvement to reduce app confusion and clunkiness on the margins. But we are improving every day.

A someone who knows a bit about online gambling and lotteries, as there's a draw, with a fixed odds outcome, are you also insuring the jackpot? You've mentioned earning off deposits and interchange, etc, but I have also worked with companies who will literally insure the product, so if the 10m is won, you would just pay the insurance excess and the insurance company picks up the rest.

Yeah we are insuring the jackpot, so if someone wins the 10m prize, an insurance company pays it out.

Is it possible to opt out of all the crypto, credit and debit card promos in the app? I’ve got my emergency fund parked in a saving account and I’m not interested in the other products.

I see. This is helpful feedback. No way to opt out of seeing the promos, but we can add this to our backlog to add in.

Thanks, even I could just dismiss these two boxes. I’d like to be able to just see my savings account and weekly picks.

Makes sense for sure

What is the median spend on lottery tickets?

I'm actually not sure. I haven't come across a public statistic on that. It's likely much much less than the mean.

I signed up for a Yotta account and was told I'm not eligible. I was told this after I entered in my personal and financial information.

Support said they are unable to disclose why some people are ineligible.

To be honest, it felt pretty dirty to give you personal information and then be denied with no explanation.

I also asked that my account and information be deleted, but received no response.

I have now gone out of my way to tell people to avoid this nonsense. I wonder how many people gave you their info and were told "Sorry no account for you"?

Can you please DM me with the email on the account?

So you are earning yield on USDC, where are you staking or earning that? As you know its crypto winter and companies are shutting down left and right. Are the users deposits in FDIC insured banks or are they converted to crypto?

Are you FCF positive? How does your business operate if you are not making any profit?

We are not FCF positive. We've raised almost $30M in venture capital and try to operate close to breakeven.

We choose our yield partners for the USDC product very carefully. With the crypto product, we chose lower yielding options for USDC than what you saw in the market with a lot of the companies that got into trouble. We felt the other companies were doing things with poor risk management practices.

This product is not FDIC insured, so people should only use it if they are comfortable with the risk. The FDIC insured offering is our core product.

How does this work in a case of bankruptcy? See Voyager for example, they used a FDIC bank as well yet user assets were all still frozen and now are at risk. The TOS covers the banks failure, not Voyagers. How is your TOS set up?

"Metropolitan Commercial Bank issued a statement recently informing Voyager customers that FDIC insurance coverage would only be offered if the bank itself failed and not in event of Voyager’s failure"

Our USD FDIC insured accounts are separate from any USDC wallets. If there was an issue with the USDC offering, this would not impact the USD accounts at all.

Can you link some stuff on this? I've never heard of Voyager before and it sounds interesting.

yotta's involvement in crypto is what turned me off of them from the last AMA they did, I just can't approve of anything involving it (on a gambling front, on an environmental front, and just disliking the people who back it).

edit: I will say that yotta seems pretty good about being open about what they are doing, so that is a plus in their column.

We try to be as transparent as we can be.

I made an account some time ago, maybe 4 months ago? And I had already earned $56 with my $8k deposit that I moved from my banks savings to Yotta. Was always excited to see what I had won, and how much my savings was growing!

I have tried to deposit money again, and it won’t let me. Says that I can only do increments, but no matter the amount, it won’t let me deposit. But I was able to deposit $8k before with no issue. I did withdrawal the money to buy a home but can’t reinvest. How do I fix this?

Thank you, and keep up the great work!

Sorry to hear about this. Could you DM me so we can look into this?

Have you at anytime used "...Yotta, Yotta, Yotta" in your advertising?

Not really actually! Maybe we should.

What's the average amount most users have in their account? What the average amount most users win? Is there a cap? Can I essentially move my entire savings account?

The account is FDIC insured up to $250k. The average amount is in the single digit thousands. But we have people as low as $25 and as high as the FDIC limit.

Is it ever coming to the uk?

Likely eventually, but nothing imminent.

For anyone that's interested in seeing lottery odds as a simulator gif: https://www.reddit.com/r/CasualUK/comments/t74tg6/uk_lottery_simulator_playing_the_lottery_1000/?sort=confidence

Very cool, I watched all 10 mins of it. But indeed someone won the £195 million jackpot in the UK yesterday.

Thanks for sharing this! Notice how the more you play, the more your balance depletes...

A lot of friends are skeptical because u don’t publicly post the number drawn each night. They think that people get different numbers (basically calling it rigged) how do u randomize the numbers drawn?

You can compare your apps with your friends. It would be the same number. We work with an insurance company that picks the numbers.

Appreciate the response. I do see it as a good suggestion though and would probably attract more users who are skeptical. Even if it was just a story post every night of the number drawn I feel like it would bring in more users.

Got it - thanks this is helpful

You mentioned you’re shooting for breakeven. What’s your long term plan? Are you planning to launch other financial products and using the lottery product as way to have a low customer acquisition cost?

Great idea BTW!

Yeah we have a lot more products planned. Our end goal is to build a product so good and differentiated, we have strong word of mouth. Most other banking products rely on expensive paid marketing. We have an acquisition advantage through word of mouth by being different and exciting.

Can you help us understand why the impulse to gamble (take big risks to possibly win big money) is so powerful, yet losses are felt about 3 times as intensely as gains? We seem both risk-averse and risk-attracted.

We are risk-seeking with small dollars. The dream to win big is worth that "$2" ticket. But that $2 ticket all of sudden turns into a habit and before you know it it's $100s per year.

But with high dollar amounts we are risk averse. People wouldn't take the gamble if it was $640 upfront for example. But the small dollars each time you gamble on the lottery brings out the risk-seeking part of us in a powerful way.

Hey I really like you guys but can you do something about customer service? If I have a banking emergency I have to wait 24+ hours for someone to contact me back

We doubled the capacity in June and are continuing to invest heavily here. We are on it! You should see improvement already. And we will continue to improve.

The issue with almost any supportive project is overhead. What is required to avoid this becoming a thing and what is necessary to root it out?

In this case, I don't think it's solvable for the lottery specifically. They need to advertise, they need to pay vendors that sell tickets, they need to pay staff, etc.

I think the issue with the lottery is much deeper than the overhead though. The take rates are crazy high.

Is the age old theory of "if you know someone who's won big, you're likely never going to win big" actually true? Probabilities would indicate it makes the win more unlikely, but so many people disagree.

No that isn't true. It's an independent game. Other people winning does not impact your chances of winning.

Behavioral economics… I’m very interested in why I have to keep saying to my friends (I’m in the financial industry so they ask me), “wanna find the root of any problem today, follow the money.”

Do you think I’ll be able to say this less before I die? Have 30 something years on the planet so far.

Unfortunately, no I don't think you will be able to say this less. Human nature has many flaws.

With inflation going crazy, does the odds of your lottery change? Secondly do you need to change the marketing to convince people to save?

The odds for our sweepstakes have not changed. We are playing around with different ways to incentivize savings to make it more fun and that may come with different odds in the future for sure. But it will always be expected value positive.

With the stock market performing poorly and interest rates rising in the economy, people do seem more inclined to save. Whereas previously a lot of people were placing bets in crypto and the stock market during the bull market.

The prize money that we win gets paid by an insurance company right? So the prizes arent paid using the yield Yotta makes on our deposits?

Only the jackpot is paid for by the insurance company.

With the Federal reserve increasing interest rates are there any plans to increase yottas interest rate(0.2%) in the near future?

More likely to tweak prizes than the base rate itself, effectively increasing rate.

Any chance of launching in Australia? Can Australians use it?

You should be able to sign up in Australia, which will put you on the waitlist to be notified whenever we launch there! No plans to any time soon, but eventually.

Do you prefer smooth or crunch peanut butter?

Crunchy - for sure. What about you? Smooth is too boring.

I see lots and lots of billboards for powerball in my hometown outside Atlanta. Any idea on what the marketing budgets are for the lottery?

It's in the mid hundreds of millions a year. See https://www.usnews.com/news/politics/articles/2022-07-12/state-lottery-advertising-tells-players-half-of-the-story

4% interest on USDC? Where is the USDC deployed to, to be making this kind of return. We've seen numerous crypto lenders go under recently offering 5-10% and it seems like that's all you're doing as well. Lending out user deposits. Likely you'll go under if you fuck up once. Where is this being lent?

We choose our yield partners for the USDC product very carefully. With the crypto product, we chose lower yielding options for USDC than what you saw in the market with a lot of the companies that got into trouble. We felt the other companies were doing things with poor risk management practices.
This product is not FDIC insured, so people should only use it if they are comfortable with the risk. The FDIC insured offering is our core product.

What about the money that the lottery uses to help fund educations?

If the lottery didn't exist, that would be $50B+ US consumers would have in their pockets (lottery spend net of lottery winnings). The state lotteries are an inefficient taxation scheme. There's a lot of overhead for that $100B before it actually goes to state programs.

I feel better about putting that $100B right back in people's pockets rather than the government generating tax revenue on it. It's effectively taking money from people who most need the money (largely a regressive tax) and then giving it back to them inefficiently.