Banks are taking greater control of the personal financial management market as the third-party vendors that defined the space increasingly find they must work with banks to survive.
Over the course of 2010, many pioneers in the PFM field either shut down or changed their free consumer service model to be a partnering bank vendor. Nevertheless, their run has shown banks that customers want to do more than they are able to with the rudimentary online banking systems most offer.
PFM "is absolutely central to our online strategy," says Joy Marshall, senior vice president in the Internet services group for Wells Fargo & Co. This year the company will focus on "fundamental improvements to the customer experience that will let the PFM tools be more accessible to a broader customer base."
Analysts say other banks need to adopt this view, because there is still a chance that newcomers can overtake the PFM space if banks do not press their advantage.
"At this point, online financial management is the banks' and credit unions' game to lose," says Cathy Graeber, the founder of the consulting firm Swimming Upstream.
PFM goes a step beyond online banking by giving users tools to chart their spending and create budgets. Most offerings also import data from multiple bank sites, giving users a fuller view of their finances than they get from any one institution.
Even today, much of the innovation in this space still comes from third-party players, and banks cannot discount them as they attempt to bring new services to their own customers. "Banks can't rest on their laurels," says Mark Schwanhausser, senior analyst for multichannel financial services at Javelin Strategy and Research. Companies like Intuit and Paypal have "opportunities to disintermediate and take away big chunks of business from the banks, who need to find ways to bring people to the online channel."
Wells Fargo led early in 2005 with its My Spending Report and followed that in 2006 with My Savings Plan. It added another tool, called Budget Watch, to My Spending Report in 2008. Wells is working to streamline these spending and budgeting offerings, and last month combined them into a single product. Wells also recently announced it was adding a feature called Cash Tracker to its ATMs, which helps customers track how much cash they are withdrawing each month.
In the coming months, Wells plans to more tightly integrate its PFM tools and make them more intuitive. "To the extent the tools can operate on autopilot," they will, Marshall says. For example, Wells' PFM tool can automatically categorize customer transactions across all product lines.
PNC Financial Services Group set an industry standard with its Virtual Wallet, introduced in 2008. The three-in-one account combines checking with short-term and long-term savings, displayed in an intuitive and visually appealing way that many industry observers described as game-changing. (PNC declined to be interviewed for this story.)
Bank of America Corp. has plans to streamline and integrate its My Portfolio PFM offering, coinciding with a broader redesign of the company's website.
"Online banking is part of PFM, and the concept of PFM is driving everything we do," says Dottie Yates, senior vice president in charge of online and mobile channel planning and design at BofA.
In October the bank simplified the look of BankofAmerica.com, removing confusing links and categorizing activity and products into big, bold tabs like "Bank," "Borrow," "Invest" and "Plan." The PFM program will follow suit. "Now it is about putting a new design and more intuitive and cleaner design around [those] capabilities," Yates said.
Some banks' PFM upgrades came just as some well-known independents were calling it quits last year. The best-known of these was Wesabe, though lesser-known competitor Rudder also closed and Intuit axed an in-house PFM offering, Quicken Online, following its 2009 acquisition of PFM market leader Mint.com for $170 million.
The main reasons for Wesabe's failure, according to some industry observers, was its refusal to consider ad hosting or lead generation as potential sources of revenue. One of the company's founders, Marc Hedlund, cites Wesabe's inability to attract a large enough audience and its lack of an adequate sales force when it finally decided to sell its software to banks.
Wesabe "was another case where [a PFM company] had not thought out the business model and shied away from saying, 'We will let banks and credit unions license our product,'" Graeber says. "They could not build a direct-to-consumer brand in a way to get enough eyeballs and figure out how to monetize this."
To compensate for its minimal sales force, Wesabe tried to automate its sales process by listing its pricing and features online. Bankers could pick a PFM system as casually as consumers might choose a rental plan on Netflix. Hedlund later said this approach was a poor fit for how banks handled their technology spending decisions.
Like Wesabe, other vendors switched from a free-to-consumers approach to start selling software to banks. Geezeo, for example, largely shut down its consumer site to pursue this new model.
"Our long-term business strategy was geared toward the institutional market, but we started with consumers to test products and get user feedback and vet the viability of the concept," says Peter Glyman, the president and co-founder of Geezeo.
About a year and a half ago the Tolland, Conn., company discovered through a survey of its user base that 80 percent of its customers preferred to use PFM tools at a bank site, rather than a third-party provider.
As part of its strategy of courting banks, Geezeo designed its technology platform to do more than just improve a user's online banking experience. It also let financial institutions mine a customer's PFM data for marketing opportunities. So far Geezeo has 13 clients, primarily credit unions with assets between $500 million and $7 billion.
"We are betting everything that financial institutions are committed to incorporating PFM into short- and long-term strategies and that customers will expect these tools from their financial institutions," Glyman says. As with online banking, those banks that initially resisted PFM now must play catch-up, he says.
One of Geezeo's clients is Unitus Credit Union in Portland, Ore. The $820 million-asset institution incorporated PFM into its online banking offering in August.
Laurie Kresl, vice president of planning and business development for Unitus, says a number of vocal members who had been using Intuit's free Mint.com site and other PFM tools asked if the credit union could incorporate something similar into its online banking. Unitus licensed Geezeo's product and branded it Total Finance. "Members were talking about how to get a better handle on their finances," Kresl says, adding that many customers wanted the credit union to host the tool that would help them consolidate their financial picture. As of the start of the year, Unitus had signed up 500 of its 68,000 members for Total Finance, for which it charges $2 a month, after a 30-day free trial.
Third-party providers remain some of the strongest innovators in the mobile category, which some analysts predict will explode in the near future.
At issue is the changing nature of online banking. As younger consumers enter the market, they will want more interactivity, more mobile applications and a social component, observers say.
Sometime soon, "PFM becomes online banking," says Jacob Jegher, senior analyst for Celent. He predicts that PFM will ultimately have rich graphics, a dashboard presentation with information about consumers' financial positions and analytical engines built around transactional functions. "From a relationship perspective, PFM will be the most important" thing for banks.
Whether it is banks or independent third-party providers that create this new world remains up in the air. Nascent demand for mobile payments could throw another curve ball at the banks.
Vendors are positioning themselves to compete in novel ways. Bundle Corp. and Intuit's Mint, for example, mine aggregated data and offer services that show consumers what they are spending compared with peers. Intuit has a PFM offering called FinanceWorks offered through its online banking unit, the former Digital Insight. "What you will see is the evolution and merging of online banking and financial management," says Albert Ko, vice president of consumer solutions for Intuit's financial services division.
Pageonce in Palo Alto, Calif., has positioned itself to capture the mobile trend. Though it allows users to sign up online, it directs them to a mobile device for the full PFM experience. Pageonce launched its system in June 2008 and has 3 million users. Its app consistently ranks among the top 10 mobile apps across the different smartphone operating systems, the company says.
"Our intent is to move away from just letting people view their finances, and to move toward doing things like transacting and transferring money," says Steve Schultz, Pageonce's chief operating officer. "This is the next wave."
