Personal Finance management, first step towards banking 2.0

Discreetly, Postfinance added a personal finance management solution to its e-banking platform at the beginning of March. The time to ensure that this service, called eCockpit, works with the quality and performance required, the establishment is preparing to promote it widely to its customers and beyond. The company which will obtain its banking license next year is not the only one interested in the field of Personal Finance Management (PFM). The Zurich publisher Crealogix, which specializes in e-banking solutions, has been offering the Scandinavian Meniga solution exclusively on the Swiss market for several months, which it has adapted to the specificities of the Swiss market. “PFM’s solutions are a first step towards banking 2.0. This represents an upheaval for banks, because the customer is now in control,” explains Richard Dratva, CTO of Crealogix.

The features of Personal Finance Management

So what do these PFM-certified online banking solutions consist of? Strands, Meniga, Lodo Software or Linxo are among the young publishers offering this type of solution. Although each has its specificities, their products have in common to offer banks three groups of functionalities intended for their e-banking customers.

1. Categorization
First of all, PFM solutions make it possible to categorize in detail the transactions carried out by customers, whether they are amounts received or spent (salaries, purchases, invoices, rent, etc.). This categorization is carried out largely automatically thanks to the information available at the bank (business where the purchase was made, recipient of the payment, etc.). For the rest, users can categorize them manually, typically for the use that is made of a cash withdrawal, or even establish rules so that the categorization is then automatic. This categorization generally concerns all customer accounts and all means of payment (debit and credit cards, e-banking payments).

2. Visualization
PFM’s solutions therefore offer a view of all categorized transactions. Simple, user-friendly and interactive dashboards allow you to view income and expenses in multiple ways by selecting categories and periods. A customer can thus, for example, visualize the distribution of his household purchases in the form of a cake diagram or follow the evolution of the costs related to his car.

3. Budget
The third level of functionality consists in concretely assisting the client in managing his budget. He can thus set savings objectives and receive notifications or even encouragement when he achieves them. He can also see the balance actually available to him taking into account the planned bills or, precisely, his savings objective. Some PFM solutions also allow you to compare your budget with that of other people with a similar profile, in an anonymous way, of course.

All these functionalities are made accessible from the establishment’s e-banking site, if possible in a form that preserves the appearance and experience of the existing e-banking interface. “Eventually, Personal Finance Management aims to become the first service accessed when connecting to an e-banking platform,” says Richard Dratva, who recognizes that banks are not yet ready to take such a step.

The CTO of Crealogix also considers that Personal Finance Management is particularly attractive and suited to emerging mobile terminals and uses. In a recent study devoted to the subject – Personal Financial management: The Devil Is in the Details – the specialist firm Celent even recommends that financial institutions consider tablets as the main terminal from which customers will access their e-banking.

What advantages for banks?

The primary interest for retail banks in launching such a solution lies in the value of the offer offered to online customers, as explained by Armin Brun from the management of Postfinance in the interview he granted us (page 23). User-friendly and innovative, Personal Finance Management promises to increase customer loyalty, to differentiate itself from the competition, and even to attract young customers who are fans of simple and modern online services. Customers with accounts in several establishments may also be interested in grouping them with a single bank in order to have a consolidated view of their assets and their transactions. According to publisher Meniga, whose solution is used by the Icelandic bank Islandsbanki, 20% of the institution’s customers signed up for its PFM service within 6 months of its launch, 70% say their loyalty to the bank has increased and 89% would recommend the service to their friends.

On the other hand, an important opportunity for banks lies in the new information obtained on customers. Data which, correctly used, allows banks to better segment their customers and send them targeted offers directly online. A way of doing things faithful to the creed of the current web, which wants users to agree to provide information about them and to be offered promotions, as long as they receive a real service in exchange… According to Edward Chang, CEO of Strands, PFM solutions will also offer ever more data analysis capabilities, sometimes using artificial intelligence. As in the case of business intelligence, the future of PFM is in predictive analysis with the possibility for users to anticipate their budgetary needs and for banks to make proactive offers. By offering, for example, a mortgage loan to the customer who has collected 80% of the equity for the purchase of a property.

Go beyond e-banking

However, banks are not rushing to the gate of the PFM. According to the Celent consultancy, only eight of the 50 largest American banks currently offer such a service to their customers, even if their number should increase to 21 by 2014. In Europe, BBVA, ING, Islandsbanki and Société Générale have also takes the step, while Postfinance is the first to launch on the Swiss market with the Strands software. For the rest, most establishments continue to base their offer on e-banking platforms born around fifteen years ago and which have often hardly evolved – apart from sometimes their transition to mobile. A lack of development which perhaps explains why 12% of Swiss consider e-banking complex and impractical compared to half as much a year earlier, according to a study conducted at the end of 2011 by Infosurance.

In fact, the evolution of the web in recent years has and will continue to change customer expectations of their bank. For Thomas Puschmann, project manager at the Institute for Business Informatics at the University of St. Gallen, five trends and innovations will govern the bank of tomorrow: simplification, gamification, mobility, “social” and the integration of data and processes at the customer level. All of these characteristics are found precisely in Personal Finance Management solutions.

Organizational and cultural challenges

Technically, the deployment of a PFM solution is not very complex and does not explain the lack of interest from banks. “All the data is there,” says Richard Dratva of Crealogix. The main technological challenges consist of aggregating data from different accounts, adapting the look & feel of the service to that of e-banking, and, above all, pre-categorizing as many transactions as possible, so that the categorization takes place automatically for a maximum of them, recognize both Postfinance and Crealogix. Given the importance of mobile terminals, simplicity and customization should also be favored rather than adding functionalities For Richard Dratva, another problem lies in the pace of development specific to Web 2.0: “Banks and publishers of core banking are accustomed to relatively long development cycles. With the internet, the pace is accelerating and, with web 2.0, the service must evolve almost continuously. Users are more accepting of a trial & error mode with continuous improvements rather than the launch of a service considered successful and which does not evolve. It is therefore necessary to profoundly change the approach and organization of the project”.

While banks often put forward the problem of security to explain their wait-and-see attitude, the majority of players active in the PFM interviewed for this article believe that the brake is above all cultural. Traditional e-banking has enabled banks to facilitate access to their services 24 hours a day, while reducing their costs. With the PFM, it is no longer a question of making the offer accessible but of practically assisting customers in their need to manage their budget. With a return on investment based more on the creation of value than on savings and therefore more difficult to quantify.

New entrants 2.0

As in other sectors, the evolution of online banking services owes much to the emergence of external players. In terms of Personal Finance Management, the American service Mint, launched in 2007, has undoubtedly acted as a precursor, with more than half a million users after one year of service. Unlike the PFM services offered by banks, Mint’s (like those of Manilla and Linxo) aggregates data from multiple banks. In Switzerland, such a service would not be possible today, given the diversity and complexity of the login systems offered by the various establishments. A way to secure e-banking but also to protect against new entrants. For Paolo Buzzi, CTO of Swissquote, newcomers could one day circumvent these protected grounds thanks to the adoption of mobile payment.
The fact remains that, as Richard Dratva predicts, Personal Finance Management is undoubtedly a way for banking institutions to lay the first brick towards banking 2.0, while taking advantage of their trust capital which remains higher than that of web players. Or will we perhaps see the emergence of new banks experienced in the rules of web 2.0, like the German Fidor Bank or the American Simple, which claims on its site not to be a bank but ” something new in finance, a well-designed everyday experience”.

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