PFM Is Dead, Long Live FPM

PFM (personal financial management) is dead. And if you want to know who killed it, look in the mirror. Because you killed it. You, the banks and credit unions that have been implementing PFM. And you, the PFM vendors who have been selling them this stuff.

I know what you’re thinking: What the hell are you smoking, Snarketing Boy?!@#? You’re thinking, “We integrated PFM into our online banking platform and saw a big spike in adoption in the first 90 days!”

That’s actually how you killed it. You buried it. Buried it alive. Stuck it in the discount rack of that dying record store you call your online banking site.

—————

It didn’t have to end this way. But you deceived yourselves into thinking PFM was something that it isn’t. The following quotes were pulled from CU Times:

“We wanted to bring a product to market that offered our members a real and complete solution to managing their personal finances.” — Credit union COO, referring to PFM

“The purpose of the new tool is to help build awareness of the credit union’s ability to help individuals plan for short- and long-term financial goals, as well as track income and expenses and promote financial literacy.” — Attributed to just the credit union

“Gaining an understanding of one’s financial picture will empower our members to make prudent financial decisions.” — Credit union CEO

I’m sure there are plenty of similar quotes from bankers, I’m just too lazy to go find them.

The problem with these statements, however, is that none of them are rooted in reality.

PFM — as implemented by most FIs today — is mostly budgeting, expense categorization, and cash flow analysis. Not only is that a far cry from being a “complete solution” for helping people manage their finances, but, drawing upon a recent survey of 1,115 consumers conducted by Aite Group, and published in a report titled Strategies For PFM Success, there are (at least) two issues that prevent the above statements from being true:

1. Few consumers are sufficiently engaged with the management of their financial lives. I identified 14 financial activities — including budgeting, expense categorization, forecasting cash flow, evaluating savings/investment performance — and asked consumers if they did these things, and if so, how frequently. I took the results and grouped respondents into one of three activity levels: Low, moderate, and high. About 30% of consumers (consistent across generations) are not at all engaged in their financial lives.

The percentage of consumers that are highly active, however, varies by generation: One-third of Gen Yers, a quarter of Gen Xers, about 15% of Boomers, and just a handful of Seniors active in the management of their financial lives. One thing, however, is consistent: The most active consumers are those most likely to use PFM tools. Bottom line: Unless consumers become more active in managing their financial lives, the PFM tools will go unused.

2. PFM tools fall short of delivering full value. One of the things I discovered analyzing the survey data was that PFM users could reap three types of benefits from the tools: Oversight — knowing where their money is and where it goes; Insight — knowing how their financial lives are performing; and Foresight — knowing what to do to improve the performance of their financial lives. Bottom line: Few PFM users have reached the pinnacle (or the middle level) of this pyramid.

—————

PFM is stillborn. Budgeting and expense categorization, with pretty charts and graphs (and now Bubbles!) simply doesn’t have that much of an impact on consumers’ financial lives. Consumers get Oversight out of PFM, but that it isn’t enough. They need more.

I’m not one to shy away from trying to name things, so I’ve got a name for what is needed. If you’re dyslexic, you already know the answer: We need FPM. Financial Performance Management.

Consumers need tools like the bill analysis tools that Truaxis provides, the card and mortgage analysis tools that Credit Sesame has developed, the saving incentives apps that Bobber Interactive has designed, and the spend management capabilities that Banno demoed at the recent Finovate conference.

But consumers need these things to work together with their existing accounts, and existing online and mobile banking platforms. Independent, one-off tools and sites will never gain enough traction to garner a significant mass of consumers.

If FIs really want to provide their customers and members with a “complete solution to managing their personal finances,” they’re going to have to go well beyond slapping up some PFM (i.e., budgeting and expense categorization) tools on their web sites. 

It’s going to require a concerted — and probably strategic — effort to bring these capabilities together into a coherent offering.

Adding PFM as a feature to checking accounts is a dead end. 

FPM needs to become the product. It’s what people will pay for. It’s what delivers the value.

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30 thoughts on “PFM Is Dead, Long Live FPM

  1. Great post. As I see it, the problem with PFM is it requires engaging with customers and asking personal questions. I realize that banks continue to say they want to engage with customers, but these are the same banks that don’t ask for email addresses, cell phone numbers, preferred communication channels or what products they have at other financial institutions when a new account is opened. In other words, talk is cheap.

    In addition, most PFM tools (if we want to categorize budgeting and bill payment as PFM) have been sold at the retail bank level as a ‘product’ as opposed to through the personal and private banking network that is growing at most institutions as a service. If we want to build the insight and foresight categories of engagement, this must be marketed by people who are in the target category of customers, as opposed to being sold by front line staff who usually haven’t reached the ‘oversight’ category.

    You have written often about the disconnect of engagement in banking. This is a great example of how banks have tried to ‘producize’ a service, undervaluing the potential for customer growth and revenue.

    This is not an easy service to build, understand or sell. The value to the bank and the customer is significant, however.

  2. Having worked on Quicken desktop for over a decade, took Quicken Online and converted it to form Financeworks, and now leading the team at Personal capital, I have to say I mostly agree with your assessment. PFM as a standalone barnacle available from a tab in online banking or investing has peaked and really doesn’t deliver. It has slightly expanded the range of users who were willing to use a standalone solution like Quicken, MS Money, YNAB, but still delivers low usage and low engagement because, it’s yet another thing to do, not the thing that you must do.

    The real promise of PFM is that it can be built into the fabric of the banking experience, when PFM is a real integrated part of online banking and investing. That’s what companies like Simple are trying to do with Banking and what Personal Capital is trying to do with Investing and banking.

    • SiliconPM: “it’s yet another thing to do, not the thing that you must do.” BINGO. Nobody wants to do budgeting. It’s a chore, it’s painful. I don’t care how automated the data collection is. People want deals on the things they buy. They want somebody to say — “hey, you can get a better on deal on XXXX over here.”

      I’m going to be real interested to see what you guys do w/ investing because, as far as I’m concerned, what you’re doing goes way beyond creating a better interface to the existing mess. To that end, I have to admit, that after years of hype, I still don’t understand exactly what Simple’s game plan is, if not creating a better interface to the back end mess.

      • I don’t get Simple at all, I respect their original vision, I think they quickly figured out, ‘banking is hard,’ and had to scale down their vision. Finding where I spent my money on a map isn’t something I have ever needed to do. I’ve never woken up in the morning so completely trashed that I needed to login to my bank and follow map of my charges the night before.

        Their work on ‘safe to spend’ is a feature we built into the original Quicken Online in 2008, and had inside of quicken desktop. It wasn’t perfect because Quicken wasn’t a financial institution with control over how transactions are posted and displayed.

        I think most of the innovation available to something like simple would be from being the bank core, or having control over the bank core and business rules rather than a front end for a banking partner.

        Working in personal finance for 17 years taught me that I don’t want to work in personal finance without a business model.

        • From a customer perspective, I think what Simple really offers is help avoiding overdrafts and credit card debt. Simple probably won’t help you much if debt and money management isn’t a problem, or if you like using credit cards for most expenses and don’t have a problem paying off your balance.

          Simple also offers a unique, modern aesthetic and some handy online tools. Some people may sign up just because of their design aesthetic and out of a desire to try something new. However, I don’t think the design aesthetic or online tools provide Simple with a sustainable advantage versus larger banks — they’re too easily copied.

          From a business model perspective, Simple is essentially a low cost alternative, especially for (younger, hipper) people who get hit with fees and interest payments. They’re able to charge less by running a lean operation without a branch network, their own ATMs, big buildings, outlandish bonuses (I’m guessing), etc. As a tech startup, I’d guess they’re offering stock options instead of bonuses. They’re biggest cost challenge, long term, is going to be scaling their customer support and service.

          That’s my take, anyway.

          • Andy: Good point about being too easily copied. The model sounds like it could run into the problem that insurance companies face: They do some great advertising, offer lower rates…but when the rubber meets the road (i.e., when a claim is filed) the customer learns (the hard way) that the service is lacking, and selects the NEXT carrier based on service, not price.

  3. Ron hits the nail on the head with this assessment of PFM. The product offering itself is weak as it has not changed much since Yodlee, the grand-daddy of PFM providers, launched its consumer service in 2000/2001. As yet another stand alone offering, PFM has little chance of success given
    - consumers’ lack of interest (relatively high awareness accompanied by depressingly low activation rates and single digit active engagement rates – read more: http://bankblog.optirate.com/comscore-2011-online-mobile-banking-red-flags) and,
    - the previously mentioned weak offering

    The real issue for Bankers is very simple — Where is the opportunity for incremental
    - Loyalty,
    - Revenues and
    - Profits

    I have not heard any Banker or PFM vendor articulate an answer to this question in a direct and quantifiable manner. And I think that the reason for this is that, perhaps, there is no (good) answer.

    One of the challenges facing bank executives and PFM vendors is to determine segments of consumers that are most likely to actively engage through a PFM solution AND create a strategy that will deliver higher wallet-share (ie real loyalty), incremental revenues and profits. Absent these three business metrics, it isn’t clear how PFM (and frankly any other product and service) benefits the Financial Institution or the consumer (given that consumers will (in)directly pay for value).

  4. Good perspective but to Siliconpm I would say – You’re lucky you have never needed to watch your finances so closely. I read a bunch here about what’s good for the bank. I’m not a bank. PFM is good for me. It beats the envelope system (ancient budgeting method) and beats the spreadsheet system (slightly more modern) and it beats the online method of checking FI, and logging into each website where I transact business. I’m in the minority. I’m not going to change your mind and you won’t change mine. Throwing statistics around is a nice touch, but unconvincing since like I said. I’m not going to change your mind, and you won’t change mind. I’m enjoying the debate though. Rock on!

  5. I think hairs are being split here. The stats you provide suggest that about 20% of people are ‘highly active’ with their financial lives. That correlates well with the 14% +/- that I recall actively used Quicken in the old days. PFM as originally defined is too hard and having it online in any form and using the old definition will not raise the participation if it still requires the work by the consumer.

    Isn’t the issue that the playing field remains open for what Siliconpm speaks of and that is bank(s) to provide services that are fully integrated with customers accounts and investments and (somehow) proactively prompts/ prods them in the right direction to get that 20% up without all the hard work.

  6. Ron – great post and your assessment is dead on. Granted PFM has had an impact for customers but unfortunately only the few. For some its been a disappointment, and for the masses they probably don’t even know their FI has a PFM tool. Your perspective illustrates why I find myself going crazy when reading blogs comparing FI’s to the Retail industry. The differences are too numerous to list but your article illustrates another example of one of the key problems….we build it, or in this case buy it, and expect people to come. It’s an industry where we buy with no intentions of building a strategy, stash the product responsibility under someone in IT or Operations, use terms customers don’t understand (PFM?) and tell everybody how innovative we are as an institution.

    On the other hand, one thought came to mind and it may be an unreasonable question…or maybe its just for those few who say we should learn from the Retail industry, could there be a day that the bank ask the vendor “how are you going to help me market this product/service and get my customers to sign on to use the service or buy this product?”. I’m not suggesting Market Development Funds and slotting allowances are in the future but as much as we fault the FI’s I think the impact should be shared by vendors who offer a “silver bullet” to the customer experience or whatever our needs are.

    Again, great post with a great perspective.
    Lee

    • Lee,

      Great point on the marketing of services. That is exactly what I do in my job…help our clients understand how to market our service to their customers and connect them to resources who can do it for them if they lack the resources internally. Basically, I am building what I wished I had had from so many partners when I was sitting on the other side of the desk.

  7. You should check out the new Dutch bank: Knab (Bank spelled backwards, with the K of Customer = Klant in Dutch, in front). They’ve just launched and their core offering is your pyramid. They charge 180 euro per year for the service you can completely consume online… and more.

    There’s a lot of criticism on the price of the offering, because people are not used to pay this much for a bank account (imo you get this on top for ‘free’), not noticing that the key offering is FPM.

    I haven’t found good English articles on the new bank yet. I hope you can. If you want I can try connect you to them to see if they are willing to talk to you about their offering..

    Cheers,
    Wim

    • Frankly, dear Wim, you have to add that this is a banking initiative started by a big financial institution also known in the UK: Aegon.
      Next to that, the target audience are the ‘well to do’, people with over 50k Euros on the bank and an income of 100k+ annually. As I read this article and most comments, financial education is key. This Knab bank just targets at a limited, well to do audience. Nothing wrong with that but hardly ‘revolutionary’ as they claim.

      • Hi Norm,

        I do not see Knab as revolutionary yet.. But if this initiative turns out to satisfy needs from the underserved in quantities that will allow for this venture to create a sustainable business, that’s just fine.

        You define the “well-to-do” as people with over 50K on the bank.. 50K happens to be about the average saving of a Dutch household.. And these are the underserved from my perspective. People with little to no money on the bank may have too little money, but they do have wide access to banking accounts and payment infrastructure, at low costs. People within a fair range of the average, mostly do not have direct access to Private bankers, but also do not have the time and knowledge to make their money work and secure their risks. Last mostly because they don’t really grasp their risk. Knab seems to fill the void. It remains to be seen if the void is big enough..

        And, as far as I can judge now the business model is transparent. That in itself could be seen as revolutionary ;)

        Wim

        • Wim, Norm -

          Thanks for your comments. Much appreciated.

          I’m in no position to comment on how “revolutionary” Knab is or isn’t. I don’t know the Dutch market, and I have to rely on Google translator to tell me, in English, what’s on Knab’s web site.

          But there is one comment I will make: I’m not sure “revolutionary” is an appropriate criteria.

          At the recent Finovate conference in NY, practically every presenter described his or her firm’s technology as “disruptive.” I guess that’s great for generating press and buzz, but it’s not a very measurable or verifiable thing.

          Same w/ “revolutionary.” Does Knab have to put the rest of the industry out of business for it to be “revolutionary”?

          For me, the far easier criteria to track are sustainability and profitability. If Knab (or any startup) clears those hurdles, then I’m impressed.

  8. You can’t handle the truth! Ron, we live in a world that has budgets, and those budgets have to be monitored by men with bubbles. Who’s gonna do it? You? You, Yodlee? I have a greater responsibility than you can possibly fathom! You weep for FinanceWorks and you curse Mint.com. You have that luxury. You have the luxury of not knowing what I know: that your overspending at the bar that night, while tragic, probably got lots of people trashed. And my existence, while grotesque and incomprehensible to you, saves money! You don’t want the truth, because deep down in places you don’t talk about at parties, you want me in Online Banking! You need me ion Online Banking! We use words like “income”, “expenses”, “goals”. We use these words as the backbone of a life spent monitoring our finances. You use them as a punchline!! I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom that PFM provides, and then questions the manner in which we provide it! I would rather you just said “Thank you,” and went on your way. Otherwise, I suggest you open an account at Movenbank or Simple. Either way, I don’t give a damn what you think you are entitled to!

    Bottom line, we need more BUBBLES!

    • THAT’S IT! NEW SNARKETING 2.0 RULE! FROM HERE ON OUT, NO ONE — AND THAT MEANS NO ONE — IS ALLOWED TO MENTION SIMPLE (OR BANK SIMPLE) UNLESS THEY EXPLAIN WHAT THE HELL IT IS!!!!!

      • Cue the “Blepfard Effect”, which states ”It is impossible to ask people to imagine a situation, a state of mind, or something that they can’t possibly imagine when they have no basis of experience to do so.”

      • Jim, I do not believe in PFM as currently defined. For example, I was talking to colleague about the top Financial iPhone Apps being downloaded at the moment, and mentioned how a bunch of them were PFM apps – such as Credit Karma. I was stared down and told that they were not PFM. Lets see, they provide my credit score, give me actionable advice as to increasing my credit score, and show me ways to “save” money (kinda). That sounds like Personal (its MY stuff) Financial (credit impacts my finances) Management (actionable advice I can follow).

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  11. When I read this post, I’m tempted to paraphrase the Bob Dylan classic, “How many WeSabes and Kublaxes must shut down before PFMs call it a day?” As I’d pointed out in my last year’s blog post (http://sketharaman.com/blog/2011/04/23/how-many-more-pfms-do-we-need/), standalone PFMs could present a unified picture of a user’s personal finance across multiple products and FIs – provided the user didn’t mind handing over their access credentials to all their financial product websites to the PFM company. On the other hand, bank PFMs always had a problem: Why would a customer share with the PFM-sponsoring Bank details of his or her relationships with other banks? End of the day, people will put in efforts to make money or save money. PFMs simply help with budgeting. Just as no one got rich by saving, no one got rich by budgeting either. This explains the present plight of PFMs.

  12. Good post, Ron. PFM should not be only pure banking solution, rather it should a tool which educate people how to control their finances wisely.

    Fully agree with your arguments about FPM. Have a look at this study done by Bankfutura E-Finance Research titled “Creating Outstanding Personal Finance Management Services” for the German and Italian market (here you can find it: http://www.bankfutura.com/knowledge-base/creating-outstanding-personal-finance-management-services/). This research revealed that consumers care more about daily life issues such as spendings and savings, they are worried about being cheated, fraud.

    For instance, about 60% of the Germans prefer PFM feature which help them control their spending, 61% said that they track their spendings in order to save money. These people prefer and would welcome any tools that help them solve their real daily concerns such as spending and savings problems, protects them against fraud etc. Therefore, the tools which educate people in managing their finances, deliver real values to them would be more demanded, and this is what people need.

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