Startups' new approach to PFM: Sit back, let us handle it

Many personal finance management tools are coming up short in part because customers consider them too much work. As a result, a new generation of tools are embracing a different approach: sit back and tell the customer what they need.

For example, Charlie, a chatbot powered by Plaid, is designed to connect to a user's bank account, categorize transaction data, analyze spending patterns and suggest ways for customers to fix issues in their financial lives. The chatbot appears as a penguin on the screen and hangs out on Facebook messenger or in a user's text messages.

Ilian Georgiev, CEO and co-founder of Charlie, said the bot aims to keep things simple for the user, “whenever we are talking about needs that can be handled in 40 characters or less.”

And if the bot can’t address a customer’s issue, it provides links to others that can. If a customer consistently incurs overdraft fees, for instance, Charlie might suggest the customer make use of Earnin, an app that allows people to get paid ahead of payday with no fees. Or if a customer has an abnormally high bill, Charlie might offer Billshark to negotiate the price of that bill.

Ilian Georgiev, Charlie's CEO and co-founder

Charlie’s proactive approach to PFM recently landed it $9 million in Series A funding in a round led by Propel Venture Partners. The startup says it plans to use the funding to develop its insights engine, grow its user base and hire more talent.

Charlie is part of a push among developers of PFM tools to move from giving customers a look back at their finances to providing them with a picture of what their finances could look like going forward, said Kapin Vora, partner and head of North America wealth management at Capco. Charlie, Vora said, also demonstrates a shift away from mobile applications that require the customer to be active, login and look at their accounts to a model where the customer can be passive while the bot figures out what information to push to the customer.

Georgiev said he found inspiration for Charlie in research from Stanford University’s BJ Fogg which concluded that users need motivation, simplicity and a trigger for making decisions. Georgiev’s initial company research made him realize that in financial matters, that motivation already exists. If customers are presented with simple choices at the right time, he said, they make the right choices for their financial lives.

“Money is not just money,” Georgiev said. “It’s how you relate to your friends, family and how you think about yourself. The problem isn’t motivation, it’s simplicity and timeliness.”

The startup has roughly 250,000 customers to date, 80% of which are women. The average customer is 27, and McDonald’s Corp. is the one retailer that the average customer spends at most frequently.

Propel Venture Partners met Georgiev and his team at the beginning of the summer. During their conversations, Propel realized the fintech wanted to raise money and took the opportunity to invest early.

“In that conversation, I said, ‘We understand you want to raise a round next year, but we’re prepared to raise one now,’” said Ryan Gilbert, partner at Propel. “‘You should focus on growing the business versus raising capital.’” All of Charlie’s seed investors participated in the round.

Georgiev’s own story helped sell the bot to investors. He turned down the chance to do a PhD at Carnegie Mellon and spent five years designing games, all with the goal of one day building tools that could tackle personal finance.

“Anytime there is a new platform like the internet, social media or the mobile phone — it gets figured out first by games,” said Georgiev. “But instead of helping people crush candy, I want to get them out of debt.”

With funding, Charlie plans to partner with more fintechs and financial institutions to offer customers more financial services. The chatbot favors challenger banks: Chime, Simple and Ally. A disproportionate number of users add the challenger bank accounts to Charlie, according to the firm.

Still, the fintech has primarily been in discussions with credit unions about formal partnerships. “Their mission is aligned with ours,” Georgiev said. “They also have lack of awareness in their user base, and we can remind their members of what their credit union offers if it makes sense.”

In the coming year, Georgiev said he intends to offer debt refinancing to customers.

“On the back end would be the financial institution, but we would own the user experience and the branding around it,” Georgiev said. “You want to ditch your Netflix subscription, but if we figure out how to get this $5,000 debt down to an interest rate of 10% or 6%, then you can keep your Netflix subscription and get out of debt. Hopefully with a press of a button within Charlie.”

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