How to Transform PFM into a Virtual Personal Finance Coach

      Posted by Nicole Harper on Aug 30, 2016 in Thought Leadership

      While there’s been a lot of coverage recently on Fintech disruption and innovation in the banking space, Personal Finance Management (PFM) isn’t gathering enough attention even though it represents a phenomenal opportunity for banks to proactively help customers manage their finances.

      So what gives?

      wipro digital's Strategy Director Alla Bida explains and paints a compelling picture of what a game-changing, supercharged PFM looks like.

      Personal Finance Management (PFM) Applications

      PFM applications allow users to view, categorize and organize transactions and accounts from sole or multiple institutions. PFMs typically include data visualizations of spending trends, budgets and net worth.

      The roots of PFM go back to 1983 when Intuit introduced Quicken. Another notable first mover was Microsoft, which developed Microsoft Money in 1990.

      In 2007, Mint automatically aggregated accounts and transactions from different institutions. Since 2008, PFM has expanded in scope to include financial advice through apps such as LearnVest, Personal Capital and Credit Karma. New digital banks such as Simple and Moven offer the same services. Others, such as Strands, offer white-label PFM solutions directly to financial institutions.

      Early versions of standalone PFM solutions had mixed success and adoption rates have not met commercial or customer expectations. According industry research, about 20% to 25% of people today use digital tools to manage their finances, and of those users, about 75% are using third-party tools such as Mint or MoneyStrands.

      For PFM to be valued by customers, it needs to be predictive and engaging, while helping customers make smarter financial decisions.

      A Virtual Finance Coach at Your Fingertips

      Today, many banks provide money management tools as part of their digital banking proposition, however information is typically limited to banking transactions within the provider’s institution. If banks can overcome data and security issues and offer an all-in-one, aggregation-enabled proposition, they will most certainly disrupt PFM.

      A successful PFM would be fully integrated in the digital banking experience and provide a holistic view of the customer’s financial position by aggregating all accounts inside and outside of the bank. 

      It would provide more than just historical data, offering transactional and analytical tools such as financial calendars, cash flow projections and real-time alerts. The ideal PFM would be a “virtual finance coach” helping customers reach their financial goals.

      PFM tools collect an incredible amount of information about customers and their financial transactions, decisions and plans. Insights derived from spending categorization and lifestyle analysis could help banks give budgeting advice. With the help of predictive analytics, banks can stop customers from over-committing and put budgeting controls into place.

      In addition to budgeting and tracking, future PFM platforms can add value by providing benchmarks and targets for customers based on personally selected goals and finances.  For instance, a PFM might suggest the ideal percentage of income to allocate for living expenses, car or mortgage payments. 

      Because customer expectations are becoming more sophisticated, banks will need to boost PFMs with features that provide the same convenience consumers find in their favorite non-banking apps. Ideal features would include: 

      • A simple and intuitive interface that’s available 24/7 via any channel – most importantly, on mobile
      • A single application that monitors multiple accounts/products
      • Predictive budgeting based on previous spending and saving patterns – based on the individuals and/or whole data populations
      • Alerts to coach (congratulate or warn) users when they reach self-selected targets or exceed budgets
      • Scenario based and comparison tools that drive smarter spending decisions
      • Benchmarking tools that allow users to compare their finances with peer group and “people like me”

      The next generation of PFM should be super charged by the power of Big Data and Artificial Intelligence to deliver more intelligent insights, relevant and contextual marketing messages and tangible benefits to customers. A Virtual Finance Coach would be an essential app that people would use as part of their daily lives and in planning for their futures. A super-charged PFM is undoubtedly on the horizon.

      The question remaining is, who will deliver it first?

      -Alla Bida

      Strategy Designer, wipro digital

      UPDATE: The future has arrived!


      EDITOR'S NOTE: This article has been reproduced with kind permission from the author. Some minor changes have been made to reflect style considerations. Read the original piece here.

      Nicole Harper
      Nicole Harper

      Nicole is a communications professional with a strong interest in innovation, big data, UX & human-centered design. She brings disruptive ideas to life and tells stories by delivering beautifully crafted and engaging content.

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