Recent legislation takes a bite out of bank revenue traditionally derived from overdraft fees and credit card products. A few big-name banks have said they will respond not by charging new fees for existing services but rather by using price to compete aggressively for customers who can bring additional deposits and loan revenue.
Indeed, a growing number of financial institutions are offering personal financial management services to broaden customer relationships. They are enhancing online banking sites with features that let users analyze expenses, create and manage budgets and track their net worth across accounts held at the bank and at other financial service providers.
The promise of PFMs, coupled with aggregation of users' financial data, is compelling. Banks can not only strengthen customer loyalty by helping users better manage their money but also leverage a comprehensive view of customers' financial positions to more effectively target relevant products and services.
In recent conversations with bank executives, I've heard:
"In two years time, PFMs will be table stakes for online banking."
"I would happily offer a free PFM in exchange for capturing data that helps me intelligently cross-sell to my customers."
"A PFM gives me the ability to think in terms of life-cycle management. So when Bill the college student graduates, he becomes Bill the car loan buyer and eventually Bill the mortgage loan borrower."
To realize their potential, PFM services must deliver on three core attributes. These are the same fundamentals that propelled online banking from its early-adopter status to consumers' most preferred delivery channel today:
The services must be easy to use. Interfaces, navigation and graphics must be intuitive and easy to understand, available 24/7 via single sign-on and, ideally, presented in the user's choice of language and currency.
The services must be reliable. Account balances must be up-to-date, with refresh just a click away. Automatic expense categorization must not sacrifice quality for quantity; users will lose interest if their spending reports require repeated manual correction.
The services must deliver genuine value. PFMs must deliver information that is immediately useful and meaningful, and this may vary depending on the customer segment being served. For some users, it means tracking the ebb and flow of their net worth; for others, it is understanding where their monthly income goes, comparing themselves to peer groups or learning how to create and work toward a savings goal. Promotional messages should reflect an accurate understanding of each user's financial position, offering a better loan rate, a more aggressive savings return or a certificate of deposit to those customers who will most benefit. The technology exists today to help banks analyze and optimize this kind of customer insight for use in tailored online marketing.
The three fundamentals of usability, reliability and value remain constant regardless of how a bank deploys PFM services — whether introducing a tab within online banking, employing widgets on customer-defined landing pages or linking to social media and mobile applications.
Nonbank PFMs have captured the attention of millions of users at a time when people are more concerned than ever about their financial health. Now is the time for financial institutions to take the lead in offering online PFM services that are branded with their trusted mark.
Banks can help consumers better understand and manage their money while building relationships that let each financial institution present the best of what it has to offer, to the right customers, at the right time.
