Personal Financial Management: From buzzword to reality
There seems to be four great aspects to tackle to fully integrate PFM tools in a way that creates value for users and the entities that develop them: The conceptual, the behavioral, the technological and the revenue aspect. PFM (personal financial management) has been on the radar of many banks since 2006, when the first wave of financial management tools came to market, but since then, not much has changed in terms of widespread adoption of these tools, but why?
The conceptual: PFM is banking.
Most banks today that want to “start offering PFM to their customers” seem to conceptualize PFM as a separate world from banking. I’ve seen time and again PFM applications, widgets or links that are being developed separated from people’s online bankings to show them the same information they already have but in a different way; So why not weave PFM into our existing platforms? Why not reorganize them to meet the requirements of an ever-growing-thirsty-for-knowledge client base? Why would we spend thousands in creating the new when we can recycle or reorganize the old? We should not try to add parts to a concept, instead we should think about creating a new experience with what we already have and is known to the user.
In addition, we mistakenly conceptualize PFM only from its technological aspect. It is seen as a software that processes data and spits out information, but PFM is (and should be) much more than that. If PFM would only entail plugging a software, lots of PFM applications would have been successful long ago. Some entities have started to take small incremental steps, adding tooltips, reorganizing actions the user makes to change his mindset about what he is really doing, for example, going from “the purchase of dollars” to “investing in dollars”. Changing a mindset by reorganizing is also driving PFM forward.
As designers, we should think about viewing PFM from a more global vision, where the reorganization and visualization of key aspects of user´s online bankings, putting forward information written in a simpler way, can be the drivers to better adoption and usability.
The behavioral: PFM is associating user aspirations/goals with their budget and transform them into actionable information.
It is boring for users to set up budgets or enter data. If our PFM service turns the user from a decision maker to data entry, our design will probably fail. Usually, people want to attain a goal, a dream, not to input data to create a budget to be able to reach it. Dreams are what keeps us going, our internal compass, budgets are much less exciting. With this in mind we can try to gamify the situation or design the experience in such a way that creating a budget becomes a more exciting part of the journey (or at least a less laborious one).
Another important point to consider is that our PFM service should balance the effort the user has to put into the service to gain value. It has been proved before that consumers are not willing to put work into managing their finances. If the user sees that he can pay his fixed expenses, set some money aside or pay a vacation once in a while ¿Why would they ever put in the effort to budget or separate transactions into various categories?¿Can we think about an experience where the user is not an organizer but a re-organizer, and avoid him the effort of starting from scratch?
Whichever way we choose to help our user visualize his finances, our PFM service should also try and paint a clear picture that shows the user an exponential benefit of use. Let the user know when he attains a milestone, or how much he has gained by doing a certain task.
We could try and think about making our systems transparent to the user, let them know who they are to us, how do we value them, and what they can do to get a better chance of attaining benefits and new products. Gamification can be used in this matter as a catalyst for use.
Another thing we should take into consideration is that it is probably easier for the user to create a budget or set up goals for a specific milestone, for example a trip, than be 100% aware or conscious of how much they spend, when they spend or where on a regular basis. Fixed expenses like rent or payment of services are easy to track. If you asked someone how much he/she spends you will probably get a quick answer: The little purchases users make are the ones that are easily forgotten. These are the expenses we need to bring forward, reorganize and make evident.
Also, budgets to attain long term goals that users set up for themselves are rarely respected. This is because in most cases, people are shortsighted when it comes to longer spans of time in the future (ex: retirement), and the tools we have available today (spreadsheets and how information is displayed in our homebankings) is just a static image or a photo of our current or past situation: There is no PFM application that can aggregate account information to extract behavioral patterns to inform the user about how he or she should spend his money in the future. What can be done is, for example, set up a retirement goal, make the user choose what amount of money he wishes to withdraw from his salary, (avoid percentages) and make him simulate to project in how much time he would reach that goal with the money he decided to set apart, and the amount of time it will take to reach his retirement each time he deviates from his goal.
To add, most PFM services have complex tools that make it difficult for users to adopt. One of the biggest barriers is the lack of financial education within the tools. It is overwhelming for someone that has never had a full picture of his finances or budgeted before to start doing it altogether. We should try and make our PFM tools scalable, make the user learn seamlessly to later become the financial expert he needs to be: It is easier for the user to take action using the tools and visualizations he already knows. It can be overwhelming to input data or suddenly see complicated charts about their finances that they have never seen before. An app that has really thought about using the known instead of the unknown is #Goldbean. They thought about turning spenders into investors by making people invest in the companies they already make purchases: They made the intangible financial world tangible and approachable.
The technological: Most PFM tools don’t really show the user a full picture of their finances or the benefits they could obtain.
Most PFM tools don’t aggregate user accounts. If the user has more than one bank account, probably it will be hard to give him a full picture of his finances. There are lots of users that transfer their money to other banks because they have better benefits or rates, or even have money on their PayPal accounts or other non-banking services. If our PFM tools can’t track the user´s money to its final destination possibly the tool won’t give him enough value, unless he is a payroll user and has his finances concentrated in one financial entity. Account aggregation seems to be the biggest blocking point when it comes to the growth and adoption of PFM services it will be hard to show the user held-away assets.
Furthermore, relatively few PFM services offer tailored products to the user. In most cases banks use their PFM technologies to be able to offer the client the best choice of from their existing pool of products and services, narrowing the universe of existing possibilities and maybe losing a deal because of lack of flexibility in the offer. With the universe of APIS and Open Banking knowing hard at our doors, why not offer more? Why not benefit from this new wave and embrace the products and services that are already out there? This doesn’t mean that banks should give up all their competitive advantage on products and services to the competition, but maybe weave products and services that would take a long time for them to develop into their existing offers.
Another important point are predictive models of spending and saving. Although helpful, they are a double edged sword. These models can be a shot in the dark, depending on how data is being managed. A big issue is the feedback loop these models present to the users: They give them a false feeling of certainty and control, and the models themselves are reinforced by the actions the user makes based on the information the model has given them. Models can be self-fullfiling, but that doesn’t make them right. We shoud think about nudging the user, or asking him questions, like the books where you choose your own adventure and make him choose his desired path, rather than telling him directly what to do or only deliver deterministic answers.
The revenue aspect: Most entities fail to see actual revenue from their PFM services.
Most banks don’t seem to get ROI from their PFM services, but maybe because they are not looking in the right place. Most would focus only on the increase in product sales or cross sell, but what if, as designers, we make them focus elsewhere, and started to compare customer retention vs. customer attrition after implementing PFM? What if we started to measure the amount of engagement and use in our online channels? Or the amount of savings or investment increase and if there is a possible correlation?
PFM will probably serve banks to create more trust, retention and longer customer lifecycle, and all of these are longterm results which usually clash with the line of business plans.
Most entities are not prepared to harness behavioral insights from customer behavior, mostly because they lack the structure to do it. Most banks have lots of data about their customers, but that doesn’t mean they have information that they can use that can be actionable or can help them make better decisions on how to target their users in a non marketing-centric way. Most people don’t want to feel targeted by ads or acquire products, they want to learn how they can live better with the money they already have. Why instead of trying to target people better, we thought about helping them see untapped financial possibilities? Why do we always seem to focus only on how to market better?
As designers we should probably start focusing on financial wellness, which is more about building better financial habits, rather than asset management through better product targeting. If we don’t, we risk losing our front end customer relationships and become only a mere backend support system.
