PFM Truths We Don't Believe--And Lies We Do...

As the CEO of a company that is part of the "PFM Movement," I've read just about everything that has been written about personal financial management technology over the past 3-4 years.  And I must say that while the volume of material continues to increase (a good thing), so does the noise-to-signal ratio (not a good thing). 

Bottom line, there are a lot of unproven--and flat-out wrong--ideas about PFM that have been floating around for so long that they have become part of the conventional wisdom within the industry.  And while some of these ideas may be helpful in the short-run to companies like ours, I think it's better to dispel them now so as to avoid the likely backlash that comes with services that have been oversold.

So with that, here is my list of Top 3 Truths about PFM we don't believe and the Top 3 Lies we do:

Truth #1: Online banking customers are not interested in financial management
This is a harsh truth that we all have to face up to.  Consumers don't want to manage their finances.  They don't want to build budgets and tag transactions, or plan for the future, or figure out how much insurance they need.  They just don't--most people think these tasks really, really suck. 

Now don't get me wrong.  These same people definitely want their finances to be managed--meaning they want bills to paid, checks/debit cards not to bounce, insurance to be bought, savings to grow, etc.  But they don't actually want to DO THE WORK.  If someone could create a financial management fairy, it would be a smash hit.  Until then, online banking must focus on giving users simple, easy-to-use tools that almost "trick" customers into actively managing their finances, because this is the only chance we have to get people to do something they know they should do--but really don't want to.

Truth #2: Online Banking = PFM
No, I don't mean that online banking already has all the features and functions of PFM--it doesn't.  What I mean is that for most online banking customers, online banking "is" their PFM--because they don't use anything else to manage their finances.  Online banking is the closest thing to PFM they have--for better or worse.  Whatever tools and information they have access to inside online banking, that's what they use. 

So if they can only see transactions, make transfers, and pay bills, then that's what they do.  Why?  Because those tools are there, and therefore it's easy (see Truth #1).  Sure, they occasionally use other tools/services to do financial stuff, but with very little frequency.  Whatever PFM tools or services we think consumers need/want must become part of online banking--because it's the one "PFM" tool most of them actually use. 

Truth #3: Banks aren't interested in customer financial management, either
This is another harsh truth that the banking community needs to admit.  Currently, banks are not in the business of helping customers do financial management--they are in the business of selling financial products. 

Moving into the financial management arena pushes banks out of their comfort zone for sure--for the most part, retail banks have not been in the financial management advice business, so we're talking about a whole new ballgame, service-wise. 

And there is, of course, the natural tension that exists between selling products and giving good advice that banks must face if they go this route (just ask the brokerage industry!).  Helping customers avoid overdrafts or pay off high-interest credit cards (good advice, bad for business) are some simple examples of the conflicts that must be faced.  I believe banks can (and must) overcome this challenge, but to do so they must first admit it's a problem and discuss ways to fix it (and not leave it to the CFPB to dictate solutions).  

And now, the Lies...

Lie #1: Account aggregation = PFM
This is more of an oversimplification than an outright lie, but it's still an idea that needs debunking.  Giving online banking customers the ability to view "foreign" accounts inside the virtual walls of an online banking app is a good service, but only because it gives customers more access to information.  It doesn't do anything to help customers better manage their finances.  Aggregated account information is helpful, but it's only a first step in the move towards PFM--it's not even close to the end game. 

Lie #2: PFM helps customers do a better job of managing their finances
The benefits of using traditional PFM have been touted far and wide.  But if you take a close look at the toutings, you will notice something:  so far, there isn't any evidence that using a PFM service actually helps consumers improve their financial situation.  Other than survey research--where many PFM users say they "feel" more confident in their financial management--there is almost nothing to show.  The only hard-data example I've found is from HelloWallet, and it's pretty preliminary.    

Now, I truly believe that PFM tools have the potential to help customers do a better job of managing their finances.  It's just that the current tools aren't there yet.  And I don't believe they will ever get there if they don't move away from providing information and move towards giving advice (tell customers what to do) and offering behavioral-modification mechanisms (that's a fancy way of saying tools that help customers regulate their own self-defeating financial impulses). 

For example, I think Mint's alert emails are the best feature they offer, because they can help customers avoid making bad decisions.  And I believe the list of customized action steps that we give our customers at SimpliFi is our best product feature, for much the same reason.

Banks have a role to play here as well, by developing new products that complement/extend the advice and behavioral-modification features of PFM.  Again, there is a long way to go here.  The only product innovation I've seen that really fits the bill is the "keep the change/top-up" debit card for forced savings.  (It certainly isn't merchant-funded rewards...)    

Lie #3: PFM is about customer retention
We know that online banking customers are fairly "sticky," so it's almost impossible for for PFM to amplify this much further, especially when you consider that the type of online banking customer most likely to use PFM is what I like to call an intense user:  frequent visits, online bill pay usage, remote deposit capture.  Their retention profile is already very, very good--so the value pitch for PFM based on boosting retention is weak.

The other problem with the retention pitch is it undersells PFM's potential.  PFM, if it's done right, can be a key component in moving online banking from it's current state (information, internal money movement, bill pay) to a true sales/service platform, with advice and guidance, customized offerings based on smart analytics, and consultative selling (automated and via human interaction).  Selling retention as its value proposition will keep PFM in the "nice-to-have" bucket, and that simply won't do.    

So there you have it, my list of Top 3 PFM truths we don't believe and Top 3 lies we do.  I feel sure that PFM is a topic of interest to many of you, so please share your thoughts and comments.  If you agree, tell me why.  If you disagree, do the same. 

Comments

[Paul Amisano]

Bryan,

Great post! I don't necessarily agree with all of it, but Truth 2 and Lie 1 especially resonate with me.

I have been selling the idea at our bank that OLB = PFM. They need to be thought of the same internally, because our clients think they are one in the same. Some clients have said they do their online banking at Mint.com, for example.

Somehow, some folks have the idea that PFM = account aggregation. I take it they see at Mint.com and the others, and aggregation is the only functionality they see? Dispelling this myth has been an ongoing crusade for me.

[Jeff Johnson]

You need to check out Alkami Technology. We've created a killer OLB platform -- with built in PFM tools that has taken away the tired-head and confusion of working with PFM tools that require night classes and iron-clad willpower. Our stuff is clean, smart, slick and easy to use again tomorrow.. the push for better ease of use, higher adoption, and ultimately more time spent on the site. This piece above is officially dated!

[Dan Mullineux]

I agree and in fact pushed it further but in a much less clear way...

"This brings me on to personal finance management software – why do people think they want them?.... No one really wants to spend the evening poring over graphs and charts, and tags and budgets, these are all just ways to help the customer make the right decisions. If the banks made the right decisions for the customer in the first place, and could communicate that in a way that built trust rather than continually eroded it who would need a pie chart, to check up on themselves?

There may be some value in tapping into our voyeuristic and competitive tendencies for titillation, telling us how much worse our family is than everyone else. Wouldn’t that be great, when a bank does its job so well that all we want from it is a bit of light entertainment!

(hope links are allowed, otherwise happy for you to edit and post)
http://www.moneytoolkit.com/2011/02/lets-get-rid-of-banks-and-pfm/

[Bryan Link]

Hi Jeff--
Thanks for commenting, and while I'm glad to hear how enthusiastic you are about your company's product, that doesn't make the issues I raised about online banking/PFM somehow out-of-date. Based on the product description you gave, it sounds like Alkami shares many of the same beliefs on these issues, so I wish you guys all the luck--it would be a great proof point!