The latest Digital Banking Club Webinar, entitled "Personal Financial Management: a key weapon in banking loyalty wars?" was hosted by RBI and Intelligent Environments on 24 April. A record numbers of listeners heard three expert presenters discussing the growing popularity of PFM tools. Ellie Chambers and Sebastian Whale report
The Digital Banking Club Webinar, chaired by Douglas Blakey, group editor of consumer finance titles at Timetric, brought together three expert presenters to discuss the increasing importance of effective personal financial management (PFM) tools and whether customers are better off accessing PFM tools via their online bank than a 3rd party account aggregator.
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After a short introduction by Blakey, Simon Cadbury, head of strategy and innovation at IE, kicks off the presentations.
"Our research shows that being in control of your money is a key contributor to personal happiness. It is therefore unsurprising that personal financial management tools have become a key weapon in banking loyalty wars.
"Aside from using spreadsheets and pen and paper, consumers can make use of three types of PFM tools.
Cadbury adds: "First, financial services provider’s online banking sites; second, a third party website or an aggregator and third, packaged desktop software, some of which has now been available for more than 20 years.
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By GlobalData"These tools provide a wide range of functionalities. They are, in order of popularity; account aggregation, the ability to see all your accounts in one place; spending categorisation, which might give users a pictorial representation of their spend patterns in the form of pie charts; budget and savings goals; product recommendations based on transactions data and peer group comparisons, allowing users to compare their spend and income with others."
Cadbury goes on to explain that despite the wide range of types and functionalities offered by banks and third parties alike, consumer adoption of PFM tools is currently lagging behind expectations.
"The common consensus out of the analysts is that less than 15% of online banking users are using PFM, with one analyst, Celent, claiming that just 4% of online banking users are active PFM users.
"Of the 49m Americans using PFM tools, the winner remains the DIY option of tools from the third party software houses."
What best describes your personal use of Personal Finance Management (PFM) tools?
However, Cadbury says that there remains a compelling case for banks to invest in PFM tools. He explains that PFM helps banks differentiate their websites – banking websites and mobile banking apps currently offer little more than electronic versions of static paper statements.
Cadbury also argues that customers are less likely to switch once they have set up PFM tools and that increased engagement is also a key factor.
"The Spanish bank BBVA claims that PFM users spend twice as long on the bank’s website per session as regular users," he adds.
"Banks are best placed to offer PFM. Firstly, customers do not have to set up a new online banking account – it’s part of the same digital banking service. Secondly, banks have years of experience in helping customers manage their money and are best placed to compare you with other customers.
"Banks also have a better view of customers’ eligibility for other financial products, while others will argue that using a 3rd party aggregator is not secure. Some banks, like RBS, say it’s a breach of terms to pass your data onto an aggregator."
On the other hand, Cadbury says, there is little evidence of consumers preferring their banks’ PFM offerings.
"A survey by Aite Group found that half of Americans don’t look to their primary financial services provider to help them manage their money and 80% of households don’t even do budgeting."
"As we have seen customer needs and the opportunities are wide ranging. There isn’t a one-size-fits-all solution, hence there’s space in the marketplace for more than one solution and more than one provider."
"My recommendation is that financial institutions provide PFM tools but that they keep it simple. Something that is easy to swallow is more likely to be consumed."
Anne Boden, CEO at SocialFinTech and formerly chief operating officer at Allied Irish Banks, gives the attendees her perspective on the current digital banking landscape.
Boden begins by providing an overview of her experiences in the banking sector, from her initial days working as a teller at Lloyds Bank to working in more remote countries including Kazakhstan.
Boden says that the pace of change in the banking sector has been significant, yet people are still unsure about what is to come next:
"Back in November last year, I spent some time visiting the big and small technology providers in Silicon Valley. Every company I visited quoted statistics on tablet and smartphone banking – everyone was convinced things should change and were changing in this direction. However, nobody was confident enough to call the future."
Citing an Accenture study on the decline of full service banks, Boden reviews her perceptions of two challenges currently faced by banks.
"There is a branches dilemma," Boden says, illustrating this through her experiences in Australia, where despite the emergence of mobile banking apps customers still used branches to pay in "cash and coin".
"Branches are probably uneconomical and we are struggling to find a strategy which is socially acceptable considering that older and lower socio-economic groups are more inclined to use branches."
Boden explains how large banks core operating systems were often developed during the 1980s, making it very difficult to innovate when you have legacy incumbent system issues.
"Let’s remember the biggest innovation in the banking industry of recent years came from the non-bank, PayPal."
Boden continues by assessing the future trends of the banking industry, and whether players such as Google could enter the sector, as an aggregator in partnership with payment providers such as PayPal.
"The Googles of this world have access to the data and analytics techniques, but do they have the trust of the people to take the brand further?"
Boden perceives that "the traditional banks will defend their position by covering every trend going."
She concludes with a word of warning of the emergence of big data within the banking sector.
"McKinsey research says that the financial services industry is one of the best positioned to generate and capture value from data. Big data could either be an opportunity to help people with life decisions or the next miss-selling.
"We have to look at the whole industry, the whole value chain and ask who should provide each component, working together for the benefit of the customers we serve."
By which mechanism are customers better off accessing Personal Finance Management (PFM) tools?
Gavin Littlejohn, founder and CEO of third party PFM tool Money Dashboard and a self-described serial entrepreneur outlines the key drivers for users undertaking PFM.
"The key driver is visibility of all the different touch points of finance in a single view."
This visibility, in turn, leads to an increased perception of control and consequently achievement for individuals in managing their own finance, according to Littlejohn.
He goes on to identify the pain points for UK consumers when trying to undertake PFM. For customers with a single provider.
"It may well be the sensible route in terms of a PFM perspective. From a budgeting perspective, to not have all your accounts with one provider makes it very difficult to plan spending accordingly at a household level."
Turning to the requirements necessary to deliver successful personal finance management to consumers, Littlejohn commented: "The absolute key thing in all of this, particularly for mobile, is speed; it is critical. Consumers have a natural lazy gene; they work very hard but strive to do less with these sorts of activities. That requires you to be very focussed on making things faster."
"The final thing if you’re going to be successful in PFM, you have to consider the users life journeys; what are they trying to achieve, what can you offer to make managing their money easier."
Littlejohn cites UK banks disguising security and privacy issues to restrict customer access to their own data as an example of members of the PFM market taking a variety of defensive market positions causing barriers to new market entrants:
"This is an issue not least because these same banks are using identical platforms in other geographies very successfully and of course intranet banking from a security perspective is not localised."
Littlejohn asserts that "The best way of delivering PFM is to disconnect the platform from the products that are put on to it." He explained how once a consumer has gained access to and utilised a certain financial product on the platform, they are then able to move on to another product and remove it from their PFM view without "feeling they’ve lost access to money management."
Through this the providers will build trust with consumers, and therefore be able to introduce products from across the market.
"The key thing we are trying to develop is a consumer centric ecosystem that is clearly giving benefits to the consumer in terms of products and services. It is something that will deliver for a variety of different industries the ability to reduce the costs of marketing and on-boarding customers."
As the webinar wrapped up with a question and answer session, Boden expresses the opinion that the industry needs to take a long term view on PFM.
She says: "I think PFM is in its infancy.
"I think it will evolve and change until it gets to a stage where the majority of people want to use it."
Throughout the webinar attendees were polled on their use of PFM tools and how they think the tools can be best provided to consumers.
When it comes to personal use of personal financial management (PFM) tools the overwhelming majority of webinar attendees were users in some form, with less than 10% declaring no interest in the service.
Notably there were a higher number of respondents that are interested in PFM tools but have failed to sign up than there were of active users. The failure of the market to cater for the needs of this significant group is telling: People want a PFM tool but are not satisfied with options on the market, or are not aware of the services already available.
When it comes to the preferred provider of these services there is overwhelming support for the bank including it along with default online banking features. Almost two thirds of the webinar attendees would like to see some kind of PFM tool offered by their bank; making it clear that the third party providers (Mint, Nutmeg, etc.) will have to make the most of their head start on the market.
