12. 18. 2017
PFM is dead: What’s next in digital money management?
A new concept could bring an end to much-criticized personal financial management (PFM) tools.
Personal financial management (PFM) tools are more and more coming under fire because of their flawed and not so user-friendly features and functions. And these are the kind of long-time problems financial institutions should no longer try to patch up. Is it time they ditched the entire concept of PFM for a completely new approach to digital money management?
PFM has been around for a long time and has actually come a long way in recent years. But customers looking for help with money management are either still not a fan or they largely ignore the possibilities PFM offers. Or, worst of all, don’t even know it exists. A recent study by Celent estimates the share of PFM users to stand at a mere 10-12%. No wonder that several PFM apps or solutions, such as Level Money, Prosper Daily or Zenbanx, were shut down earlier this year.
The criticisms of PFM are all too familiar to pretty much everyone in digital banking (is there anyone who hasn’t read a blog post or white paper about how PFM is dead?). The most common complaints include customers struggling to make sense of the transactional data in their PFM app, the poor categorization of transactions and the lack of account aggregation. Some suggest existing PFM systems could be saved with some serious upgrades. But there might be a better solution.
A new approach of PFM
The whole concept of digital money management needs to change. While PFM does offer help to customers with managing their personal finances, it expects them to do all the legwork and make all the decisions. And that’s hardly fun, making for anything but a positive customer experience. Frankly, who can define a budget for themselves? And how many people will set up saving goals manually? That would take a lot of effort and thinking.
But demand is still high for smart money management solutions. Take young people, who are less experienced with money, for example. Two thirds of university students with a maintenance loan say debt would be less stressful if their bank offered a digital money management tool, according to a survey by UK software firm Intelligent Environments. Millennials may be considered budget-conscious but a staggering 49% of those surveyed by US lender Revere Bank use offline methods, like a spreadsheet, when budgeting for future expenses, while 36% has no determined method of budgeting.
Money management tools should require less work from millennials or any other age group, for that matter. It shouldn’t be the client doing the actual management. The solution? Proper data analytics could work miracles in customer engagement and the take-up of money management services.
“Banks must be able to proactively address their customers’ money management issues and offer them tailor-made solutions, making use of the wealth of existing customer data they have,” says Gellért Vinnai, product manager at W.UP. Data-driven money management can help clients respond to life events and offer much-needed guidance on spending, budgeting and setting saving goals. Functions should include tracking net wealth and giving personal finance tips based on peer comparisons. And it should be up to the system, not the customer, to detect any changes in the user’s personal finances.
The ideal money management system sends alerts to customers, for example, when unplanned costs put making ends meet at risk or savings may run out soon. Based on banking data showing their regular expenditure, customers could also be warned when they reach their monthly budget limit because they have eaten out too often, used Uber too much or simply spent more than usual. “The next generation of money management tools must also be able to identify periods when customers tend to spend more, for example, during summer holidays or ski trips, before birthdays or Christmas,” Vinnai suggests. Clients could even receive tips on when to start saving up if necessary.
PFM: Get alerts when needed
Banks could also define long-term saving goals for customers – for example, buying their first car or home, and putting money aside for retirement – based on their personal profile and current spending habits. “The point is that the system must detect or recognize the life situation when these functions could be of interest or useful to customers, and free them from having to set up, track or look up these functions themselves,” Vinnai says.
According to the W.UP expert, these alerts will be the backbone of the intelligent money management services of the future. “Do we really need PFM screens, functions and charts? Isn’t it more efficient if the system simply warns me when needed and then takes care of everything for me?”
For more on the future of personal financial management, download W.UP’s white paper The Ultimate Guide To Digital Banking Tools and Strategies.