Receive Newsletter: 

  home about services news staff partners portfolio contact

Viewpoint:  PFM is Big Banks’ Revenue Remedy

October 28 2010

Originally published in the American Banker on October 27, 2010
By Mark Vipond, CEO of Lodo Software

Recent legislation takes a bite out of bank revenue traditionally derived from overdraft fees and credit card products. A few big-name banks have said they’ll respond not by charging new fees for existing services, but rather by using price to compete aggressively for new clients who can bring additional deposits and loan revenue to the bank.

Indeed, an increasing number of financial institutions are offering personal financial management (PFM) services to build relationships with customers. They’re enhancing online banking sites with features that allow users to analyze expenses, create and manage budgets, and track their net worth across accounts held at the bank and at other financial service providers.

The promise of PFMs, coupled with aggregation of users’ financial data, is compelling. Not only can a bank strengthen customer loyalty by helping users better manage their money, they can also leverage the holistic view of customers’ financial positions to more effectively target relevant products and services to cross-sell.

In recent conversations with bank executives, I’ve heard:

“In two years time, PFMs will be table stakes for online banking.”

“I would happily offer a free PFM in exchange for capturing data that helps me intelligently cross-sell to my customers.”

“A PFM gives me the ability to think in terms of lifecycle management, so when Bill the college student graduates, he becomes Bill the car loan buyer and eventually Bill the mortgage loan borrower.”

To realize their potential, PFM services will have to deliver on three core attributes. These are the same fundamentals that propelled online banking from its early adopter status to become consumers’ most preferred delivery channel today:

1. The services must be easy to use – Interfaces, navigation and graphics must be intuitive and easy to understand, available 24/7 via single sign-on, and ideally presented in the user’s choice of language and currency.

2. The services must be reliable – Account balances must be up-to-date, with refresh just a click away. Automatic expense categorization mustn’t sacrifice quality for quantity; users will lose interest if their spending reports require continued manual correction.

3. The services must deliver genuine value – PFMs must deliver information that is immediately useful and meaningful, and this may vary depending on the customer segment being served. For some users, it means tracking the ebb and flow of their net worth; for others, it’s understanding where their monthly income goes, comparing themselves to peer groups, or learning how to create and work toward a savings goal. Promotional messages should reflect an accurate understanding of each user’s financial position, offering a better loan rate, a more aggressive savings return, or a CD to those customers who will most benefit. The technology exists today to help banks analyze and optimize this kind of customer insight for use in tailored online marketing.

The three fundamentals of usability, reliability and value remain constant regardless of how a bank deploys PFM services – whether they introduce a new tab within online banking, employ widgets on customer-defined landing pages, or link to social media and mobile applications.

Nonbank PFMs have captured the attention of millions of users at a time when people are more concerned than ever about their financial health. Now is the time for financial institutions to take the lead in offering online PFM services that are branded with their trusted mark. Banks can help consumers better understand and manage their money while building relationships that allow each financial institution to present the best of what it has to offer, to the right customers, at the right time.

©2011 Treetop Ventures, Inc. All rights reserved. | Home | Services | Staff | Partners | Portfolio | FAQ | Privacy Policy | Contact