How many of you Gonzo readers out there are former Quicken users?
In the mid-1990s I was a Quicken user for 11 days. One afternoon in late December, I made a New Year’s resolution to organize my family’s finances. As I loaded the Intuit CD, I dreamed about the amazing pie charts and reports that I would soon whip out for my wife, and how she would gaze at me with longing, amazed at my financial prowess. The longing gazes never materialized.
Instead, I quickly discovered that I lacked the anal-retentive characteristics needed to be a successful Quicken user. By day 12, I had come to the conclusion that this software was designed for boring, organized folks with clean garages and labeled Tupperware in their refrigerators – basically losers who had nothing better to do with their lives. I had more important things to do. On day 12, I exited out of Quicken and headed back to the couch with a bag of Cheetos and the remote control – never to log on again.
I was not alone. Over the past decade, millions of Americans have made attempts to use what is known in the market as Personal Financial Management tools like Quicken and Microsoft Money. Today, the financial industry is moving away from the first era of PFM and into a new period I’ve dubbed PFM 2.0 (clever…I know).
In the PFM 1.0 era, consumers purchased software to run on their desktops. In the early days, they manually entered check register items and then they learned how to download information from their banks and transfer this information into tax preparation software for that looming April 15 deadline. For most consumers, this was just too much work for too little value.
The concept of PFM 2.0 is to integrate customer information and transaction data so that the administrative burden of being financially organized is dramatically reduced. No more uploads, downloads and file formats: PFM 2.0 will let consumers stay out of the system integration business and instead have simple money management tools at their fingertips.
Recent headlines and competitive moves illustrate the rise of PFM 2.0:
#1: Intuit Buys Digital Insight
This acquisition made big news in late 2006, and recently Intuit declared that it is “changing the face of online banking” with its Personal FinanceWorks offering. Personal FinanceWorks allows customers to view spending reports and manage all their bills, regardless of payment type, through one consolidated Web page. Intuit’s pitch is that consumers will be liberated with the tight integration of Internet banking and PFM tools. Other vendors such as ORCC (Money HQ) and Corillian (Personal Money Manager) have also been focusing on improving PFM capabilities in the past 12 months.
#2: Wells Fargo aggressively promotes My Spending Report
This feature inside Wells Fargo’s Internet banking provides customers with reports that track trends and categorize electronic payments. Wells is so excited about this offering that it has a patent pending on the design and is actively promoting the feature through radio ads. Wells is pitching the value of using the bank’s electronic payment channels to get great management information. Bank of America has also introduced a household finance dashboard called My Portfolio and others are soon to follow.
#3: Mvelopes hits the radar
A new Web offering called Mvelopes recently hit the radar screen. This Web site aggregates consumer financial data from multiple banks, provides bill pay and tracks a consumer’s spending patterns and changes in net worth. Mvelopes’ pitch is that consumers can integrate their financial lives through a simple electronic version of the old envelope budgeting approach, where money was filed into monthly categories like groceries, gas, fun, etc. This is a great example of a new competitor trying to make the consumer interface as simple as possible.
#4: Wesabe hopes to build MySpace for household finance
If you haven’t had time to check out burgeoning Web sites that use “tagging” like del.icio.us and 43things, a new financial site dubbed Wesabe may look pretty bizarre. Wesabe is pitching the idea that consumers can form a bottom-up community that aggregates and learns from information about their spending habits and experiences. Wesabe users can tag or categorize their financial transactions according to any description they want (e.g. GonzoBanker beer parties) and the system will actually learn and classify transactions at the same store the same way next time. Wesabe also touts that consumers can share tips about saving money and getting deals at merchants they commonly use. It’s hard to believe that consumers would really want to build an online community around the topic of money management (versus, say, rock and roll, sports or opposite sex trawling), but we’ll see if this thing gets any traction.
Is this just new hype like account aggregation?
I have concerns that PFM 2.0 will become another one of those topics that bankers will talk about ad nauseam but never really do anything that adds value to their earnings. Remember how everyone was scrambling around about account aggregation in 1999? I’ve been worrying lately that this type of scenario will emerge in the next few years:
Summer 2007 – buzz starts to stir around new PFM tools coming to the market. Bankers begin to raise their eyebrows at some of the cool things being tried on the Web and clicking around on sites like Wesabe and MySpending Report.
Fall 2007 – the halls of banking conferences start to buzz with new PFM products and offerings. Marketing executives return from the BAI Retail Delivery Conference uncontrollably salivating and declaring, “Our bank has to have these tools if we are going to compete in the future!”
Winter 2007 – not to be outdone by the rabid marketing executives, the technology analysts jump into the PFM mosh pit. They issue reports with catchy headlines like, “400 trillion PFM users expected by 2014.”
Spring 2008 – buoyed by growing industry buzz, banks begin to beat up their Web and bill payment vendors for new PFM tools. Vendors that can’t demo some cool PFM stuff are mercilessly thrown from rooms. Quickly, vendors form new development teams to “get something in the market quick.”
Fall 2008 – after a year of scrambling, banks begin to gear up their Internet sites with new PFM capabilities. Press releases are issued to the media, a fun demo is delivered to the board of directors and then…. dead silence!
Winter 2008 – adoption by customers on the new PFM tools is not meeting goals. In fact, your bank has only 37 customers using the new tools and 31 of them are bank employees.
2009 – banks get busy with other new trends (mobile bankers in shopping malls with remote deposit devices attached to their belts) and forget about the PFM revolution.
God, I don’t want to live through another one of those hype cycles.
If your bank is serious about PFM
While I can be cynical at times about overly complex PFM tools, I do believe that some banks could turn this into a worthwhile strategic opportunity. The key is that PFM should really be thought of as an “all or nothing” proposition. Banks should do the planning, development and rollout of PFM right or they should ignore it for another three to five years. If your bank wants to jump into PFM, here are some key tips to take with you:
#1: Monitor and observe Gen Y’s usage of these tools
Just like text messaging, the leading indicator of whether new PFM tools will gain traction will come from folks in their mid-late 20s. Looking at sites like Wesabe and another upstart called Buxfer makes me realize that this crew will bring a whole new way of thinking to financial delivery. We old bankers need to stay on top of the “crazy” financial tools the kids will be using.
#2: Make managing diverse payment information easy for customers
New PFM players have rightly acknowledged that consumers need an easier way to manage their check, debit, credit, bill pay, ACH and P2P transactions. Banks have confused customers by having payment products and information scattered all over their Web sites and retail product menus. The new design rule for PFM 2.0 is to allow consumers to see all money in and money out on one simple dashboard. Look at your Web site and see if you meet this design criteria today.
#3: View customer payment information as a valuable asset
As payments rapidly move from check to debit/credit card and bill pay, consumers are building a huge electronic database of their behavior. Banks have the ability to gain more insight into how their customers are spending their money and who they are spending it with. Leveraging this data for pricing and marketing strategies is critical, and reporting back some of this data for “peer” comparisons may also have value in the future.
#4: Position PFM 2.0 as the killer relationship banking offering
Right now, my biggest frustration with Wells Fargo’s MySpending Report is that it doesn’t paint my whole financial picture and too many transactions are “Uncategorized” because they are not electronic. At the same time, it’s easy to see the benefit of having a checking, debit card, bill pay and credit card relationship all with one bank – it would allow me to get a simple, cumulative picture of my financial life without working too hard. Banks that implement PFM will need to build their business case around this opportunity: convince consumers to put all their payment eggs in one basket and expand the ol’ share of wallet substantially.
#5: Brand and evangelize a wealth management philosophy
Before consumers actively use tools to help them track spending, budget and share ideas about saving money, they will need to be convinced this is important. Most consumers don’t budget today because they view it as a hopeless exercise. They already know they don’t have any money – no need to illustrate it with a pie chart. Many of the new PFM players are actually evangelizing the concept that better tracking of finances can free up at least 10% of income for savings. Like the “Just Say No” and anti-littering campaigns, banks will not succeed with PFM unless they take a strong cultural point of view that living within your means is important.
#6: Recognize that PFM will rise or fall on the front line
The first place banks can begin this culture change is with their own employees. Start your PFM initiative by training every employee on your offering and track the usage of these “great” tools by the folks who are supposed to be promoting their benefits.
Realistically, not enough consumers will stumble onto PFM tools themselves on a bank’s Web site and take the time to enroll. Instead, the bank’s front line sales force should be there to introduce customers to the tool, explain how they use it for their own personal life and offer to quickly and simply help them get set up. This type of air and ground approach to the PFM battle is really the only hope for these tools to ever make a meaningful dent in banking.
Is PFM 2.0 real? We’ll See
A few weeks ago, I was throwing away outdated software CDs and came across that old copy of Quicken. It’s now in the trash heap, but I’m dabbling a lot with these new Web-based tools and may even get a wild hair and try to manage my finances with one of these soon – my wife can’t wait for the pie charts.
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