The Abstraction Of Cash And The Future Of PFM

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Increasingly, clever retailers using available and emerging technology are making it more and more painless for us to spend our money.  Amazon, Apple, and others promote sleek online and mobile shopping experiences that allow us to make purchases without fumbling around for a card, account number or anything else.  This new level of “convenience” creates yet another layer of abstraction from the real measure of our financial position: i.e., our cash.

The relatively new field of social cognitive neuroscience has uncovered some interesting and disturbing findings about how our unconscious mind works to simplify our daily tasks.  To make sure we have the bandwidth required to deal with new information and tasks, the brain creates automated “scripts” that we execute without intentional thought.  This is our brain’s tendency – automate the repetitive.  This is why willpower alone can only take you so far relative to changing behavior whether it is a new diet or trying to get a grasp on your budgeting.  The old habits are very ingrained in these “scripts.”

There have been a lot of companies trying to develop tools that will help augment the consumers’ willpower when it comes to keeping track of their cash.  These tools, most of which fall under the category of personal financial management (PFM) solutions, received much attention when they first appeared on the market.  Many industry gurus thought the potential for PFM was considerable given the need of consumers for better control of their finances. 

Over time, as the dust has settled, the trend is that adoption of PFM has been meager and remains mostly so today.  These “diet aids” designed to help us connect more with our cash – as retailers make buying a more mindless task – have not provided consumers with what they need.  The reason for this is most PFM solutions are stand-alone applications that require the consumer to do most of the work in terms of set up and ongoing use.  Even those stand-alone options with considerable automation are limited in their ability to work seamlessly with the digital banking solutions offered by the consumers’ FI.

Recently, an analyst at a large and respected firm told me that stand-alone PFM systems were “dead men walking.”  It was the view of this analyst that in order for PFM to be a useful tool for a meaningful portion of consumers, it must be a set of services within the same solution used to deliver all the other banking services. PFM functionality as part and parcel of an omnichannel digital banking experience allows the FI to deliver benefits that are easily accessible to the customer: e.g., accurate auto-categorization of transactions, automated budgeting profiles, comprehensive alerting options and predictive payments capabilities.

Recent studies have shown that alerting, in particular, is a feature customers of bank and credit unions want.   Configurable, customizable alerting capabilities are not only vital to shoring up the willpower of consumers but also help them police activity on their accounts to help their bank or credit union reduce fraud. 

Currently, however, FIs struggle with offering their customers comprehensive alerting capabilities as many of the various silos within these organizations have separate alerting capabilities that are not integrated.  As much as consumers love relevant, timely alerts, receiving repetitive alerts not personalized to their needs will cause them to opt out of alerting altogether. 

A recent article in the New York Times on better ways for consumers to “reconnect” with their money missed many of these points completely because it failed to understand where the consumers go today to access the information most vital to managing their money, i.e., financial institutions.  The article was a trip back down memory lane to the early days of PFM when the stand-alone wonders got most of the ink. 

Nonetheless, in fairness to the reporter writing the article, there are a limited number of omnichannel digital banking solutions that offer personal financial management services with the level of integration that will be required to help customers easily and conveniently control their spending, savings, payments and other activities. 

In fact, most of the digital banking industry today is still bolting mobile to online to PFM to P2P, etc.  This segmented, silo approach isolates data and creates a user experience that has caused many customers to look for a new bank or credit union. 

That said, there are some companies re-envisioning the world of digital banking from the consumer’s point of view and there is a churn of technology that will help these companies make meaningful gains in market share.  This will awaken the legacy players and hopefully alert them to the failed approach of repeatedly integrating old tech stacks whose limitations make it nearly impossible to respond in a future where the requirements are most likely to be outside current scope.

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