Royal Bank of Canada is poised to launch an artificial-intelligence-based financial guidance and savings module in its banking app. The bank hopes it will be the breakthrough technology that finally makes personal financial management software popular.
For years, banks in the U.S. and Canada have struggled to interest customers in PFM apps, which attempt to categorize their expenses, show them where their money is going and help them manage their money more wisely. Usage of such apps has never surpassed 10%, according to the tech research and advisory firm Celent.
Why so low? It’s hard for software to automatically (and correctly) categorize expenses, yet it is a pain for users to do it manually, too.
“It’s been a similar experience in PFM at RBC to the American banks — you get a small number of customers who are heavy classifiers of transactions,” said Peter Tilton, RBC’s senior vice president of digital.
Another challenge is that consumers lack the patience to use separate banking, PFM and perhaps investment products to manage their finances.
“Fragmentation in personal finance is an issue; most people don’t want to jump from app to app,” said Daniel Latimore, senior vice president of banking at Celent.
RBC’s new module, which is called NOMI (a play on “know me”) and based on Personetics’ Cognitive Banking technology, uses predictive analytics and artificial intelligence to provide timely insights to customers — or “nudges” as Tilton calls them. Wells Fargo is working on a similar program with Personetics.
“It will tell you you’ve been paid, but it will also tell you if your pay has changed, and it prompts the customer to have a look at their paycheck just to make sure it’s correct,” Tilton said. “That’s very different to a process of having to sit down on a mobile device or desktop and sorting, sifting and classifying.”
Customers will receive alerts that there have been duplicate debits on their credit cards, or that their cards have been used at new merchants.
“I had one come up the other day, that I spent money in the Hyatt in New York,” Tilton said. “NOMI told me, you’ve never spent money at this hotel before, just check that this is you.”
The app also provides monthly snapshots of fluctuations in utility bills and other spending items.
RBC has been piloting NOMI with a small group of customers and plans to offer it to all mobile customers shortly. It will be integrated with the existing mobile banking app, so every customer will have access to it – one in nine Canadians with smartphones.
About 85% of customers in the pilot actively use it.
Difference maker: Automatic savings
Along with the customer insights, the new offering comes with an optional feature called NOMI Find and Save. It looks through historical behavior patterns, forecasts for the weeks ahead how much money customers will need for basic living expenses and then squirrels away surplus cash into savings.
Several fintechs, including Qapital and Digit, provide savings apps that also do this.
RBC has an advantage in that the automated savings are baked into the banking app, Latimore said.
“Eliminating steps in the savings journey by having functionality embedded in the customer’s main banking app will, all else equal, lead to better outcomes,” Latimore said.
Tilton sees the benefit as convenience.
“It takes away the hassle for the customer about thinking about, I really should be saving more, it does it for them automatically,” he said.
The No. 1 source of stress among Canadians is finance, Tilton said. Many live paycheck to paycheck.
“It’s significantly higher than relationships or other types of problems,” he said.
Tilton said the new app was born out of wanting to ease those anxieties and give them control over their everyday financial picture.
Customers who have a one-off expense coming up, such as an important birthday or anniversary, can hit a “pause” button and the automatic savings will stop until they reactivate it. They can transfer funds from the savings account back into their primary account to make the payment, too. Moreover, there’s a cushion built in to help customers handle smaller, unexpected expenses.
“Rather than looking at the rearview mirror, which is what pretty much all the PFM and money management tools do now, it’s a look out through the front windshield to model ahead with your customer about what their spend is going to look like and help them with savings,” Tilton said. “We think it will be very helpful to customers to increase their overall financial well-being.”
There are no fees for the service. Yet obtaining a budget to develop an app designed to produce no revenue wasn’t a problem, according to Tilton.
“I’m not Canadian, so I can say this with a reasonable degree of impartiality: Compared to other banks I’ve worked at, RBC does care, and a core part of its strategy is to helping communities prosper,” Tilton said. “It’s refreshing to work for an organization that’s happy to be focused on doing what’s right for our customers and community and has faith that that will help create a more sustainable bank.”
The AI inside
According to David Sosna, co-founder and CEO of Personetics, NOMI uses two main algorithms.
The first assesses users’ financial situation, including their cash flow.
“A lot of things are calculated for the user, and there’s a capability to predict the best way to provide value for the user,” Sosna said.
The second algorithm runs constantly, looking for opportunities to recommend and conduct money transfers.
“That algorithm is mostly around when is the best time to do it? Or more accurately, when can you do it without interfering with the life of the user?” Sosna said. “As the user responds to that transfer, the system learns from that, so the next time it will be better, more timely and more accurate.”
Machine learning lets the software continuously improve its insights and automatic savings.
RBC also has a development team dedicated to AI insights that expects to release new features every five or six weeks, working with Personetics.
NOMI belongs to a rising category of “personal financial experiences” apps, Latimore said.
“The first generation of these apps will have parts that work that work really well, and other aspects that need to be adjusted,” Latimore said. “Those banks and suppliers that can monitor what works and what doesn’t, and then adjust the experience accordingly, will be the ones that develop the most successful PFE over time.”
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