Less Nag, More Muse: HSBC's Strategy for Its New PFM App
Banks have a lot of data about their customers, giving them tremendous opportunity in helping people manage their money.
The key, however, is to come across more like a trusted friend than a helicopter parent.
HSBC is aiming for the former with its new financial management app, called Nudge. Released in late January, the app is in a pilot phase with just 500 customers in the U.K., as the bank is being extra careful to work out any kinks before rolling the app out to its wider customer base, said HSBC spokeswoman Jenna Brown.
The Ohio bank has partnered with MorningStar's HelloWallet to offer customers financial health scores and a suite of digital tools meant to provide financial advice at a time when branch transactions are on a decline. The experience will eventually be delivered through the bank's online and mobile banking channels.
USAA's newest app, Savings Coach, analyzes financial data to recommend small amounts of money to save and invites members to take savings challenges, then moves the money upon the member's approval. The app comes at a time when millennials have a negative savings rate.
Banks claim bandwidth and security concerns led to interruptions for personal finance apps, but institutions still resist a more secure and efficient portal.
The app uses "nudge theory" to encourage customers to make small, regular financial decisions that will result in a change to long-term spending habits.
"Sometime people really struggle to achieve long-term goals as they are so consumed with everyday life," Brown said. "If someone or something was there to give a nudge in the right direction, it can be a big help."
While Nudge is just a small trial right now, the endeavor marks HSBC as one of the few large banks seeing the rise of mobile banking as a good opportunity to revisit offering personal financial management tools to its customers.
Given privacy laws in the U.K., PFM is not as popular there as it is in the U.S., where a slew of fintech players like Mint, Personal Capital and Moven are the dominant players. Should HSBC succeed with Nudge, large banks in the U.S. could look to replicate it in an attempt to take back some of the ground they've ceded to third-party PFM apps.
"It really should be the banks that are winning in the personal financial app world. They have the best opportunity to safely and accurately present consumers their financial picture, but they've been slow to move in that direction," said Mark Schwanhausser, director of Omnichannel Financial Services at Javelin Strategy & Research.
A couple of U.S. banks are looking to get more involved in PFM. Last year USAA launched Savings Coach, a stand-alone app that uses games to engage its customers on savings. KeyBank also launched a partnership with HelloWallet, a PFM app last year to help its customers see how their money-management habits compared to others'.
Overall, however, banks have had a hard time breaking into PFM. Online portals struggle to gain momentum, and banks have been struggled in figuring out how to bring it to mobile.
Nudge thrives on the omnipresence of mobile.
Using software to evaluate individuals' current account data, HSBC Nudge identifies trends in customers' spending habits and sends regular, targeted push notifications to make people aware of their expenditure. There are currently 38 different types of nudges in the trial; examples include notifications about the amount of money spent on groceries in a week, updates on how much customers are spending or saving versus others in the same income bracket and reminders about which day of the week customers spend the most money. Brown said HSBC is the first bank in the U.K. offering such a service.
Before piloting the app, the bank commissioned a study with the London School of Economics that utilized behavioral science to explore the barriers experienced by people when trying to achieve their financial goals. It found that leveraging technology, such as automatic messages, was instrumental in encouraging people to meet their financial ambitions.
Observers say this type of a service could be a great differentiator for banks to offer customers, as long as they walk the fine line of avoiding the Big Brother scenario of getting too involved in customers' lives.
"It will be very interesting to see how this app is received; what some people might call friendly advice others might call nagging," said Daoud Fakhri, a London-based retail banking analyst with Verdict Financial.
Brown said that HSBC is sensitive to that concern and that it is trying to strike the right balance during this trial phase. "It's an elective app, and we're trying to see what works and what doesn't work," she added. "We don't want to upset anyone."
Fakhri said the segment of consumers who are in control of their finances would likely not take advantage of such a service. However, he noted that a good portion of consumers struggle with managing money and financial discipline, and would likely be receptive to help in that regard.
"This has got real potential to appeal to that segment," he added. "Basic banking has become a commodity these days; there's very little difference from one bank account to another. This service is something a bank can offer to re-engage with their customers and differentiate from their competitors."
Schwanhausser said an app like Nudge is a step in the right direction, but banks still need to go further and offer a service that aggregates all of a customer's financial accounts like, for example, Mint does. And he shared Fakhri's concern about finding the right line between helpful and overbearing. Still, banks need to be in this area, he said.
"It's a way for banks to engage their customers. They can say 'We understand personal finance and we can be your coach in this in a friendly way,' " he said.