December 05, 2011

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Personal financial management tools represent a win-win situation for banks and their customers. But they also present a potential threat to banks.

By creating a better user experience for customers and allowing banks to get a good picture of their customers, PFM solutions can benefit both banks and customers. And according to a November 2010 report by Pleasanton, Calif.-based Javelin Strategy & Research, "Personal Finance Management (Part 1): What Consumers Really Want from PFM," banks are in an ideal position to offer these types of tools through their online channels. That's largely because customers feel safer, by a two-to-one margin, providing login credentials to financial institutions rather than third-party PFM websites, according to the Javelin report.

But if banks don't take full advantage of this opportunity, then they're giving third-party websites a chance to disintermediate them, says Mark Halverson, global executive partner of the wealth and asset management practice at New York-based Accenture. "If banks don't create regular daily PFM interactions with their customer base, then they can be pretty sure that customers are having these interactions someplace else," he asserts. "Whether it's Quicken or Mint, if people decide that's the brand and that's where they go to gather the information they care about, they may not have a high degree of need to interact with the financial institution."

Mark Schwanhausser, Javelin's senior multichannel financial services analyst and an author of the November 2010 PFM report, warns that banks may not have the upper hand for long. "Over time, people will become more comfortable with web PFMs, and the gap between them and the banks will narrow," he says. "It's a gap that can't be restored. It's an advantage that banks have now, and they should not lose it."

PFM at the Center of Online Banking

So how can banks offer a PFM experience that will keep customers coming back to their websites and away from third-party offerings? Aim for ease of use, customization and total integration with online banking, advises Jacob Jegher, senior analyst at Boston-based Celent and author of a report on PFM. Banks need to beef up autocategorization of transactions, allow for customization of the user dashboard, put user-sensitive educational tools front and center, and allow for a forward-looking financial picture instead of just an analysis of past and current trends, Jegher suggests. PFM also should be the center of the online banking experience, he says.

Unfortunately, Jegher adds, most banks just aren't there yet. "There has been some movement by a lot of institutions, but at the end of the day, a lot of work has to be done," he says. "If you look at PFM solutions across all platforms, only 3.8 percent of the users are active. Part of the reason that adoption is low is because of what banks are offering."

On the flip side, banks that offer solutions closer to the ideal that Jegher describes are seeing a much higher adoption rate. For example, San Antonio-based USAA Federal Savings Bank ($48.8 billion in assets), which rolled out its online Money Manager PFM tool in June 2010, reports that more than 26 percent of its account holders use the PFM solution, with a steady growth rate of about 35,000 users a month.

Bank of Internet USA, a web-based institution with headquarters in San Diego and about $2 billion in assets, began offering Intuit's FinanceWorks in December 2010 and is now seeing about 15 percent adoption, according to Adriaan van Zyl, the bank's EVP and COO. "We are averaging about 12 percent growth every month," he says. "At this rate, we anticipate the user base will double in the next six months or so."

Creating Everyday Banking Experience

Both USAA and Bank of Internet's PFM offerings are part of their customers' everyday banking experience. The FinanceWorks solution offered by Bank of Internet is accessible on the first page of the bank's website following login, van Zyl relates. From there, customers can access their financial pictures across any number of aggregated accounts.

Bank of Internet already was using Intuit's online banking platform, so the addition of FinanceWorks to its offerings came fairly easy, van Zyl notes. "From an internal IT perspective, there was not a lot of additional work," he says. "Most of the project was actually covered as part of the online banking offering from Intuit, but we spent some time educating our customers and creating awareness campaigns to get them to start using it."

Jeff Easley, executive director of deposits product management at USAA, says that when the bank developed Money Manager, it focused on taking the work out of PFM for its customers. "When you log in and look at your accounts and personal banking products, you're seeing it all through a Money Manager view, meaning it's right at your fingertips, whether you're tapping on it through the mobile site or clicking on it through the dot-com site," he explains. "The point for us was to make it easy, make it automatic and give you things at a glance without you having to do a lot of work to get there."

USAA relies on PFM solution provider Yodlee (Redwood City, Calif.) as its aggregator for Money Manger, but the bank doesn't use Yodlee in the traditional way, according to Easley. "Their tool powers it, but there are also a number of integration pieces we had to build across other USAA systems and product sets to make it happen," he explains.

Both institutions see offering PFM capabilities as an opportunity not only to improve the customer experience and increase loyalty, but to get a better picture of who their customers are, which will allow the banks to extend other products to them down the road. In addition, "People who are PFM users are more likely to recommend it to other people," says Bank of Internet's van Zyl. "We've had quite a number of people come to us based on the fact they heard that we had this top-of-the-line personal finance management tool."

Worth the Investment

Despite the benefits they may bring to both banks and their customers, some bank execs believe they have good reason not to put PFM tools in place right now, says Celent's Jegher. "I don't see PFM in a silo -- it's part of a complete online banking overhaul," he explains. "That's a tough sell in this business climate."

For USAA, however, putting a PFM solution in place was well worth the resources it required, says the institution's Easley. "It was not a cheap project, but it's one that supports the enterprise," he comments. "We see this as a good investment in our members."

Even some of the biggest challenges in USAA's PFM rollout have proven to have a positive ripple effect on the bank, Easley adds, pointing to the challenges USAA faced when it extended Money Manager to the mobile channel last spring as an example. In order to be able to offer an interactive, graphic-rich experience, the bank realized it needed to introduce the mobile PFM on HTML5, he explains. "We hit a few speed bumps putting that out from a technical standpoint because it wasn't something we had a lot of experience with," says Easley. "But it certainly helped us launch bigger and better things with it, and we continue to expand and enrich our mobile offerings because of it."

Bank of Internet's van Zyl stresses that the bank already has seen a return on its PFM investment. "The payback on investment was ... much faster than expected," he reports.

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