Chatbots are one of the buzziest technologies in fintech, but there is already a divide on whether they help or hinder the digital banking experience.
Popular automated savings app Digit, which made messaging its primary interface in 2015, ditched the design model in recent months. While initially enamored by chatbots, Digit came to believe the question-and-answer interface was an inefficient way for its users to find out information.
Now, Credit Karma — which has 80 million users in the U.S. and Canada and sends lenders borrower leads — is going the opposite way. In mid-March, the San Francisco company bought Penny, a chatbot app developer formed in 2015 to help make personal finance more accessible, for an undisclosed sum. Credit Karma plans to sunset the brand name and integrate the conversational technology into its existing products and services.
Stephen Greer, an analyst at Celent, said the strategies make sense for both companies. Digit specializes in a task that a chatbot would likely only add friction to, while Credit Karma is offering something more complex: pitching users on loan products.
He argues that chatbots are dead for very quick front-line issues, like checking balances, but useful in other areas of financial services, such as breaking down complex issues in the loan buying process a la Credit Karma. It's a matter of how Credit Karma uses the data to offer the user more value, he says.
It’s a question banks are also studying. In recent weeks, Bank of America rolled out its chatbot, Erica, in its first market and, in turn, joined Wells Fargo, Ally Bank, USAA, U.S. Bank and others that hope bots can satisfactorily answer customer questions, help someone find what they’re looking for and, in time, save the bank money.
In fact, Forrester Research recently published a report urging banks to prepare for conversational banking so long as they aren’t racing to roll out chatbots without taking cautions and preparing strategies first.
For Credit Karma, which is now valued at $4 billion, the purchase of Penny represents diversification.
For years, Credit Karma has published consumer facts, like credit scores, and made money off its lender advertisers. Now the 11-year-old company helps customers refinance their auto loans and tackle their tax preparation and filing service needs, among other things, as more and more lenders have followed the company’s footsteps in making credit scores free.
As it has expanded its offerings, Credit Karma saw a need to change the model of just publishing facts. Its acquisition of Penny lets Credit Karma members have a conversation about something complicated and often emotional.
“A lot of Americans are struggling with their finances,” said Anish Acharya, vice president of product management at Credit Karma. “It’s not always the happiest message.”
Acharya says a conversational interface can soften the message by offering a back-and-forth exchange. He also says the model can help break down complexities — something that is particularly important for a brand that doesn’t have branches or financial advisers to call.
Certainly, it’s easy to imagine how the bot could deliver insights on someone’s financial data. As a stand-alone app, Penny acted as a financial coach and would warn someone about getting an overdraft fee and help a user visualize his spending.
While it remains to be seen how Credit Karma will use Penny’s technology, the company said it will incorporate Penny into its products and services this year.
Acharya illustrated an area where he sees a natural fit: refinancing auto loans. It’s a difficult conversation to have when someone realizes he's been incorrectly priced into an expensive auto loan.
Acharya says a conversational interface can improve the experience of something that could easily be emotionally charged and nuanced. A conversational style, he says, can help the service pick up on details that publishing facts alone would miss, such as, say, understanding someone is purposely spending more money because it’s the holidays.
Theodora Lau, founder of the fintech consultancy Unconventional Ventures, said she hopes the acquisition can help Credit Karma facilitate conversations on information that affects everything feel more human.
“At the end of the day, money is a very personal thing,” Lau said. “It’s not just ones and zeros. It’s emotional. It’s personal.”
But for now, she believes there are limits to what conversational user interfaces can handle.
“We aren’t quite there yet,” said Lau. “Is it going to get better in future? Absolutely.”