PFM tools are good for customers, businesses and banks, but what are they and what exactly are the benefits of integrating them into existing digital platforms?

What is personal financial management (PFM)?

Personal Financial Management or PFM refers to the digital tools that consumers use to manage their financial situation. Through clearer, digital categorisation of transactions, users can view budgets, analyse trends and track bills online.

Why are PFM tools useful for customers?

PFM tools give customers the ability to manage their finances in an educated and transparent way leading to better financial planning and overall financial wellness. Customers can use PFM tools to:

1. Take control of their finances by setting and managing budgets;
2. Track progress of their financial goals; and
3. Set-up notifications and nudges to manage overspending.

Why should banks offer PFM tools?  

1. To stay competitive. Challenger financial institutions have entered the market with intuitive apps preloaded with proactive and personalised PFM tools. Traditional players are automatically at a disadvantage if they aren’t offering something similar.
2. To keep up with customer expectations. A side effect of the aforementioned challenger banks is that modern customers expect a rounded experience on their digital banking apps. Millennial customers in particular have become accustomed to having easy to access, graphical representations of budgets, goals and spending in their financial platforms.
3. To increase customer engagement online. The more time consumers spend in bank apps, the more exposure they have to a banks brand, which will keep it top of mind when deciding on future banking products or services.

PFM in action

Moneythors’ data-driven engine powers PFM tools for leading banks and FinTech firms, helping them deliver personalised and actionable recommendations, insights and nudges to customers.

See example of PFM cashflow forecasting tool in action.

The post What is Personal Financial Management (PFM)? Digital Banking 101 appeared first on Moneythor.

However, when it comes to banking, little personalization has been rolled out so far behind the firewall of online & mobile banking services, despite the huge amount of highly relevant data begging to be exploited. Things are changing though, as it appears to be the next key development for digital banking.

Comprehensive transactional capabilities

By and large, financial institutions world-wide offer a rich set of transactional capabilities through their online channels today, including multiple types of internal and external fund transfers, domestic or international, standing orders, bill payment, remote check issuance or deposit, card services, account opening, trading and more.

Despite the availability and maturity of such a broad set of transactional features, their delivery within a personalized experience has so far been lagging behind. In several discussions with consumer banking executives, various reasons are mentioned to explain that lag, ranging from limited budget and resources to go beyond the initial priority of getting the transactional capabilities right, to lack of skills in the area of personalization or a fear of the regulator and concerns over privacy issues in exploiting too much of the customer data.

Far from neglecting the need for more personalisation, we are now seeing many bankers acknowledging that analytics to better understand customers’ financial behaviour and the ability to turn these into enhanced digital services are a key investment priority in the year ahead.

Marketing behind the firewall

Analyzing personal and transaction data gives banks the opportunity to understand customers’ needs today and anticipate future ones. Personalization then adds the ability to deliver those insights to customers in a contextual manner. The most obvious application of these techniques, and the one directly inherited from the e-commerce pioneers, is to increase sales targeting and effectiveness.

A low balance with upcoming bills might call for a personal overdraft offer, a high balance on a current account might suggest appetite for a fixed deposit, recurring visits to the mortgage loan information page might indicate plans to purchase a home, a frequent traveller may be interested in a travel insurance, a fine dining lover might appreciate discounts at a popular restaurant, etc. The opportunities to leverage customer-centric data analytics and personalization for targeted cross-selling or merchants-based campaigns behind the firewall are numerous.

Personal finance advisory

While there is a clear opportunity to drive business from the online channels, it is also crucial for banks to avoid limiting the benefits of personalization to achieving pure sales & marketing objectives. The risk of alienating the customer with too many ads and offers, however clever they might be, is significant.

Personalization presents a unique opportunity for a bank to delight its customers with proactive and intelligent online advisory. It is also the ingredient largely lacking from most of the first generation personal finance management (PFM) tools to improve consumers’ financial performance.

Beyond the need to deploy the right technology to enable personalization, maintaining the right balance between marketing messages and unbiased money management advices is a key challenge which banks must not underestimate. Even more so for global financial institutions operating in countries where local culture and preferences might move that cursor of interest and acceptance differently between both.

Not ending up being plain creepy is also a prominent challenge of any implementation of personalized financial services. But doing nothing to make their digital services more relevant and personal for fear of doing too much is not an option either for banks these days.

The post Personalization comes to digital banking appeared first on Moneythor.

Most of the data on the subject is US-based so far. Analysts from Celent said some time ago that only 3.8% of all online banking users are active users of PFM solutions, the Federal Reserve said in a 2012 report that 21% of consumers currently use a PFM tool while Aite Group believed it’s a tad higher at 27% and Javelin concurred with 21% using a mix and match of PFM tools, from traditional money management software or spreadsheets to online banking and third-party services.

There is little public data about the rest of the world’s relationship with PFM today, largely because the deployment of related online tools, whether embedded into online banking or standalone, is in a more nascent stage and simply because of limited analyst coverage. However the glass-half-full consensus is that there is certainly room to grow PFM adoption everywhere.

Lipstick on a PFM

Let’s save security concerns and the trust issue of using third-party services for another blog post and focus on the PFM solutions provided by banks for now. One of the key reasons cited for the lack of adoption is the absence of a common user experience with traditional online banking capabilities. Relegating PFM to another tab and failing to connect its capabilities to key sections of online banking like transaction details and statements clearly don’t help. So usability and design tricks are called to the rescue to better connect the two. Excellent.

Other reasons include the need for banks to do a better job at marketing the PFM tools, with banners and splash pages on the public web site, proper education of both customers and staff and other multi-channel tactics to raise awareness of the new capabilities. Right on.

All good reasons but do these try to address the root cause?

Money Management for the Masses

PFM tools in most of their current incarnations are basically an online port of traditional money management tools like the venerable Quicken or Microsoft Money. This approach assumes that consumers want and even like to manage their money and allocate a significant amount of their spare time to keep track of their finances in great details. The truth is that generally, beyond money management hobbyists, they don’t.

At Moneythor, we contend that an important way to increase adoption is to cater for the very large budget-averse population, for those who never cared about Quicken or Microsoft Money, for people who want to make sure their finances are on track, their bills paid and their savings in order with no effort, and certainly without a regular deep-dive into the tiniest of their expenses.

“Don’t merely throw pie charts at us and don’t ask us to set detailed budgets before we can get any value from the tool, try first to detect automatically things which are likely to be relevant to us based on our spending patterns and give us actionable recommendations or at least food for thoughts to help us improve our finances” shout the masses.

All in all, PFM functionality should simply get out of the way. It needs to truly blend with standard online banking capabilities to deliver automatically the right dose of clever alerts and financial advisory to users. Again, let’s not start the discussion by asking consumers to work but let’s assist proactively and educate softly instead.

What do you think? Do you feel that personal finance management should feature as an activity on its own in consumers’ daily routine or get slightly more subtle and non-intrusive to attract more users and solve that adoption conundrum?

The post Cracking the PFM adoption code appeared first on Moneythor.