For corporate customers, there are many tools enabling effective management of the money coming in and going out of the organization, helping to keep track of what is owed and what you owned financially. With all of this information, one can monitor the cash flow and make informed, albeit assumptive predictions about the steps needed to keep the finances on an even keel and where possible, invest and make a profit.
As for a retail customer, the above tasks, which are just as applicable to personal finances, have tended to be managed on simple spreadsheets, or just with a pen, paper, and a calculator. For a bank, enabling a retail customer to aggregate, categorize, and visualize all accounts at a personal level through a single interface – Personal Finance Management (PFM) – is not only technologically possible and desirable but is also becoming table stakes in an increasingly competitive market.
Banks have been providing Personal Finance Management to customers in some form or another for a long time. These first-generation PFMs have been limited to the data held within the bank itself and did not have access to a more holistic view of customer’s finances. In Europe, and soon in many other regions of the world, the open banking revolution has enabled bank customers, in many cases through regulations, to choose who gets to see and use their data. This has led to an emergence of standalone PFM apps from nimble fintechs, aggregating data from multiple sources, providing insights on this data through innovative and attractive UX. Banks are considering how they can emulate the fintechs and improve customer experience and their service offerings for the newcomers, in order to retain their position as the customers’ primary source of view of their bank data – the shop window, and not become a passive data pipe to feed a competitor’s product.
This is crucial in the fight for customers as the same data sources are accessible to a wider set of competitors that include not just FinTechs and challenger banks but also the traditional banks.
A fully functional Personal Finance Management requires data, which must be accessed and analyzed in real-time. This has traditionally been a big problem within a bank, as gaining a single view across a customer’s accounts and products, current/checking accounts, mortgages, loans, investments, etc. is challenging, especially where the data sits on multiple legacy systems. The advent of Big Data approaches and innovation in analytics utilizing AI and machine learning, make this a lot simpler. The arrival of APIs and microservices have made it easier to connect systems, rearchitect legacy applications for improved performance and improve access within the bank. Open APIs, whether they enable access to ‘friendly’ third parties or other banks, have made multi-bank PFMs viable – especially when backed with regulation.
Traditional banking products’ cross and upsell activity for retail customers can be perceived as mass-marketing or spam, even when driven by sophisticated insight.
With access to multi-bank and multi product data, delivering highly personalized product recommendations and advice alongside the aggregation, categorization, and visualization of accounts within the Personal Finance Management, starts to enable an evolution towards a Personal Finance Coach (PFC).
Potentially, from the moment your salary hits your account, a PFC is able to predict your expenses, manage them better, help you move your debts from one provider to another without you worrying about it, optimize your liabilities, and give you overdrafts when you need, or suggest where to invest, or save surpluses. In this context, offering customers new products is a more positive, justifiable, and personalized experience.
In the current retail banking environment, where moving between banks is becoming simpler and the services are homogeneous, challenger banks are making significant inroads into the market – a single app can enable you to make payments and collect statements from all your other banks . As a result, customer retention is hard and customer acquisition is even harder, especially when offering banking service to customers entering the workforce. Retail banks such as Monzo and Starling in the UK have an impressive number of customers and for many, they are becoming the primary banks. This is driven by providing superb customer experience where the Personal Finance Management is a standard functionality. Monzo has partnered with Flux to provide access to digital itemized receipts, so that the customer not only has a view of where he has shopped but exactly what he has bought. This gives even greater spending insights and ultimately improved advice. The Personal Finance Management helps to level the playing field for banks against the challengers, however, the digital customer experience must be at or above their level.
In the UK and Europe, and wherever open banking is being mandated, banks and the retail part of the bank, have had to make significant investments in opening up bank services, organizing data, enhancing security, and providing externally facing APIs. This investment can be leveraged to some degree with the bank acting as a data collector and aggregator rather than just a provider. Multi-bank data is the key to an optimum PFM. Providing a PFM can also enable an opportunity for mutually beneficial collaboration with FinTechs, where bank data, insights, or access to products can give Fintechs more access to customers and insights, and banks can access new propositions.
The retail banking landscape is changing, and to keep up with evolving customer expectations, new standard services should be made available. In line with this trend, PFM is rapidly becoming a key element of a retail bank offering.
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The world of banking and financial services is changing radically. It’s time for yet another chapter in this evolution, open finance.