Personal Finance Management (PFM) is a service which gains on market share rapidly. Several global (ABN AMRO Bank, ING Bank etc.) and local players (Banca Transylvania in Romania or MKB Bank in Hungary) launched this service. And customers do require this service. As the Online Banking Report of 2010 May stated: “Customers love PFM, particularly during tough economic times and reward the bank that offers it to them.”
Personal Finance Management – what is it about?
PFM is a software application which helps people keep their finances under control. In this application, you can see reports about your finances. The reports are based on the transaction history data or on the data which were entered by the customers manually.
The core element of every PFM solution is the categorization of the spending into different spending groups like household costs, travel costs etc. The expenditures can either be assigned to the standard categories of the software or the user can set up own categories. Most PFM solutions offer the opportunity of assigning limits to each category (e.g.: I do not want to spend more than 250 eur on clothing this month). As a further value, you can create automatic alerts; for instance you receive a warning SMS message when your clothing expenditures reached 200 eur.
You can also set up savings goals by saying: In the next three years, I want to buy a car for the value of 8000 euros. And then, the user can assign an investment or a savings product to this savings goal.
A third common feature of PFM is a report on the value of your assets and liabilities. This can include all financial products you possess at your bank, however, some applications make it possible to add further objects (e.g. property) to your portfolio manually.
Most solutions include forecasting tools, like projected available balance by the end of the month.
Peer comparisons are also offered by the most vendors, which mean that the users can compare their finances to the average of their peer group.
What is the return of the bank?
You can find the following benefits on the bank’s side:
-PFM will soon become a must. Meanwhile it is still a nice-to-have service today, it is a key differentiator in the online banking services market. Several banks, who implemented such service a few years ago, are upgrading it now, which clearly prooves the importance and value of PFM service.
-PFM increases both the usage of the online banking services and the customers’ loyalty.
-Banks who offer PFM has found that customers, who use this service on a regular basis, prefer electronic transactions to cash payments. The reason behind this is that electronic payments are categorized in PFM automatically, while cash spending have to be added and categorized manually by the customer. So, using a bank card for payments saves time and effort for them.
-PFM data also offer a deep insight for the bank into the customers’ financial position. This information can be used for targeted offers or for monitoring the customer’s creditability.
-Sales opportunities: cross sales offers a clear return on PFM. This is THE business case for PFM however most banks do not exploit this great opportunity.
Is PFM a software for the bank or for the end-user?
There are PFM solutions which target the end-users and there are other ones which offer PFM application for banks.
The most obvious way of implementing and offering PFM is if banks provide this solution as an add-on to their internet bank. However there are several out-of-the-box PFM software, which can be purchased by individuals. A review of the best PFM programs can be read here (http://personal-finance-software-review.toptenreviews.com/). This review was made by a US company and the introduced software have a price range of 20-60 USD per licence.
This business model is only successful when the banks offer their data via standard interfaces (e.g. in Germany, UK, Italy). In these countries, the PFM application can take the financial data automatically from the bank. If such standard data traffic is not available than the customer has to enter his spendings manually, which frightens most of the users away. Furthermore, these applications cannot offer such interesting features like peer-to-peer comparisons.
What to do, banks?
Banks will not remain unaffected by this trend. If a bank decides to implement PFM now than it has few years to capitalize on it. Offering PFM will become a must within few years, and hopefully banks will not wait until customers leave them just because they miss this service.
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