The future of PFM looks a lot less like a bank

Ryan Garner, 11:FS

Notebooks and spreadsheets have long been the go to tools for customers who want to actively manage their money.

As such, the personal finance management (PFM) market has developed rapidly in recent years because banks have never tapped into this opportunity of helping customers manage their money. They have only provided the tools to make and receive payments and see a record of those transactions in the statement.

The demand for digital money managers (DMMs)

With the rise of fintech and the introduction of open banking, DMMs have emerged from the likes of Yolt and Monzo. DMMs are now providing customers with many more options to manage their money digitally and, as a result, customers are becoming ever more demanding of what they want.

We recently conducted research that shows that customers do not want a bank, they want digital services that help them live better with money. There is a big difference that opens up huge opportunity for new growth, either from existing suppliers or new fintech firms.

Consumers that have used a DMM are making great progress in getting basic financial jobs done, such as paying their regular bills more effectively, being more conscious of their spending and creating budgets. In a short amount of time DMMs have created a positive impact on their users financial lives.

How DMMs can continue to grow

It is still early days for DMMs and there are two key ways they will evolve in the coming years:

1. To cross the chasm from early adopter territory into the mass market, the DMMs, need to start catering for a more diverse range of customers.

Only 14% of the UK have tried a DMM, which means most are still relying on non-digital tools or online/mobile banking apps that cover the basics. The typical profile of DMM users are affluent millennials who have a specific set of needs. The financial jobs they have to get done are very different from the 20 year old student living off £13 a day, or the person who has always lived with debt and never had any money to save.

Appealing to a wider audience means creating intelligent services that help customers build up a financial safety net and pay down debt. There’s a lot to be learnt from people on a strict budget, as many are really creative with their personal financial systems using systems like 6jars, envelopes or pinboards to visualise the movement of money.

Addressing these needs will help expand the market appeal and the practical usage for DMMs. But there’s also an opportunity to further develop the experience for current DMM users, which brings us on to the second area for growth.

2. Helping existing customers do more with their money.

While DMMs have greatly enhanced the control customers have over their money, there is still more to do. Money is an enabler and cuts across every part of our life so how do DMMs become more than just money?

Well designed digital services are invisible until they customer needs them. Many of the DMMs are executing this by minimising the time and stress associated with managing money but giving the customer more control. When the customer has greater control they have more mental bandwidth to think a bit more long term.

Customers of DMMs using features to gain control of their finances have become hygiene factors and new priorities have emerged. These include putting money aside for key life events like buying a home, getting married, going on holiday or starting a family. These are the important things in life and making progress towards them is where the PFM market needs to move to.

The data in the research shows clear differences in the market opportunity scores between users of DMMs and non users. The opportunity scores show us where customers are most underserved i.e. the financial jobs they consider most important and most difficult to do.

For non users of DMMs the opportunity score for creating realistic budgets is 83% but for saving for future life events (like buying a home) is lower at 61%. For DMM users this is turned on its head. The opportunity score for creating realistic budgets is 54% but saving for future life events it jumps up to 86%. This data shows the profound shift in opportunity when customers are given digital tools to help them better manage their money.

Recommendations for executing well

The first thing to remember is that customers do not want a bank as we have known them in the past. They want to make progress on the important jobs in their life. The trouble is the job of managing personal finances is very broad with a diverse range of desired future states customers are trying to work towards. These include:

• Creating a realistic personal budget and knowing how much you can spend
• Being more aware or mindful of what your money is being spent on
• Staying on track with your budget and adapting it if necessary
• Funding experiences and activities (e.g. holidays)
• Building up long term savings for specific goals (e.g. getting married, buying a house)
• Building up or maintaining a financial “safety blanket” to fall back on when you need to
• Being more financially independent i.e. not borrowing from parents or a partner
• Keeping track of your money when it’s stored in different places
• Managing your recurring bills and living costs
• Identifying opportunities to access additional benefits, rewards and discounts based on your spending habits
• Reducing or managing loans and debt
• Finding ways to make more money from your savings and assets

There is clearly no service that helps the customer with all of these.. What has happened instead is fintechs are specialising in one or two of these areas to find product market fit and building their business from there. Customers increasingly want a single platform or control panel that helps them make progress across these jobs.

The starting point for DMMs is to build their services around these financial jobs. Then the focus for proposition design is to create intelligent services that help customers make progress on these jobs rather than just offering them traditional financial products. By focusing on the service experience first the DMMs have a greater chance of delighting their customers by being relevant to customers’ day-to-day life.

DMMs must also focus on delivering end-to-end customers experiences. This means that if customers are saving money for a house, how can a DMM help customers project how much they can save and connect them to the market so they can see what their budget can buy. There’s a really interesting fintech in Hong Kong called Planto doing this but we’re not seeing this in the UK yet so there’s an opportunity for differentiation.

In summary DMMs have made a huge impact among those using them. To continue their growth trajectory they need to expand their services out to different customer segments and help current customers go beyond the fundamental financial control jobs to be done. Those DMMs that build intelligent services around the high opportunity customer jobs will win. This means looking less like a bank and help customers make progress towards important life moments.

By Ryan Garner, principal customer and product lead at 11:FS
Ryan is based in London, where he is focused on rebuilding financial services to help people live better with money. Follow him on Twitter at @RyanGarner