Money is the big taboo, undiscussed in social circles. It is unheard of in polite culture to ask your friends what they earn, or how they manage their money, and yet it is something we all secretly wish we knew. Does our friend/colleague/neighbor have all the answers, whilst we make a hot mess of our accounts?
In fact, we often don’t even ask our banks for advice, so PFM, or Personal Finance Management seems to be the tool to put pay to all this ambiguity surrounding the issue of finances.
PFM in its original, out-dated guise, is history. Long gone are the days of the pie chart or linegraph, offering redundant information about how you spend your money after it’s already been spent. This sort of account analysis would be much more at home on a banker’s desk, rather than on your smartphone.
“The old way to consume PFM was based on charts. You’ve got the pie chart, you’ve got the bar chart, the trend line telling about how your categories were instead of mixing your expenses. Today, PFM is used to trigger banking processes, to trigger a loan, to trigger a credit card subscription, to trigger a savings goal, to move some money apart. The system is understanding how you are moving your money and how you are spending it. We’re talking about invisible PFM. Those mobile banking apps are powered by data. You don’t necessarily need to see it but it’s there.” Pau Velando, GM of Strands
PFM is not a new concept; it has gone through several transformations in recent years- Lloyds
Bank in the UK launched their Money Manager in 2011 - but things have come a long way since
then. Nowadays, PFM is intelligent, an unseen ally of sorts, understanding your financial situation and waiting in the wings to offer solutions to help you manage your money better. What if your bank could predict your movements based on your spending patterns, giving you money management assistance, and help you save in the long term, all without you even noticing?
For us, it’s about taking information, and transforming that information to give relevant services at the right time,” Frankie Woodhead of Barclays Bank says. “It’s very easy to say, ‘You’ve overdrawn, sorry.’ What we like to do is think a week ahead. Things like Netflix, which is generally a monthly subscription, comes in a certain way. What we’ve tried to do is second guess if that payment is going to happen. Like, ‘FYI, your Netflix of £9.99 is due to come out in four days. You might need to think about doing something different about [your spending]”
All this begs the question: why would banks want to educate their customers? Surely by offering all this free advice and guidance they are essentially doing themselves out of their Christmas bonus?
Not quite. By being on top of your finances, they can provide timely ‘solutions’ in the shape of
loans when you’re running low on cash, finance for a new car when yours gives up the ghost, and help you put money aside for the months with the most outgoings, making it a win-win situation. You get the help you need and achieve the ultimate goal of having your finances in check and even the benefit of saving up for a rainy day.
This new form of dialogue between users and banks takes some adapting to - many are reticent to divulge their banking wrongdoings, but ultimately this system will revolutionize the way you look at banking and make for a much less solitary banking experience.
PFM offers to take the thinking out of banking, and banks are learning to speak to their customers in simplistic terms they understand, starting off with the basics and gradually introducing morecomplex ways of looking at your accounts, or Progressive Feature Disclosure as it’s known.
A little hand-holding at the start goes a long way to taking the fear out of finances. A bank telling
us how much we’re safe to spend on a shopping spree before we run into trouble? We could get
used to this.
It’s one thing for banks to make judgements on the kind of user you are based on fact; if you
repeatedly spend money on car repairs, there’s a good chance you’re in the market for a new form of transport, or indeed a loan. This risk factor comes when assumptions are made about future spending.
September is an expensive time of the month for parents, for example, so banks could be forgiven for suggesting you save money to pay for school books etc. Get it wrong though, and you’ve potentially lost a customer.
Assumption is a risky business - you might spend a considerable amount at the local bar each
month, but have thought about cutting down on the booze next month, meaning that any suggestions made based on this information aren’t necessarily gratefully received. That said, there will come a time when we’ll expect our banks to do the forward-thinking, and worrying, for us.
Change has been a long time coming, but bank customers are readier for this change than they’ve ever been. New legislation with the Revised Payment Services Directive 2 (PSD2) will bring with it better security, a more customer-centric approach to money management, and ultimately will give clients a greater sense of trust when offering up information about themselves to financial institutions. With this new directive will come increased competition too, which will drive greater innovation and a broader selection of options for the average bank user.
Change takes time, and the finish line seems to be constantly moving, making us feel that any
advances aren’t doing enough to bring us closer to the perfect solution for both banks and
customers. What’s clear is that we haven’t seen good yet, but that it’s just around the corner. The time now is for more action, less talk, and proposals that are just that little bit closer to perfect.
The blog post was inspired by Fintech Insider's podcast "PFM: Don't Call it a Comeback".
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