Why do banks need to offer personal finance management tools?

As banks increasingly look for ways to grow their market share, there are several ideas to consider. Among them is an approach that envisages empowering customers with a money management tool.

Being in control of personal finances requires methodical planning and consistent efforts. It is a fact that few people are naturally endowed with the required skills. The majority make do with their intuition and ad-hoc actions. Offering a Personal Finance Management (PFM) app to help customers acquire and follow scientific, time-tested habits is thus a great idea.

But, why now? Haven’t we been hearing of Personal Finance Management (PFM) for a long time?

True, PFM applications have been around for years. Unfortunately, the initial response to the software offered by independent vendors was rather lukewarm. A survey conducted as late as in 2019 indicated that over 50% of people were happy using traditional paper-and-pen methods, with an occasional user referring to spreadsheets.

All this is changing fast. With the rapid proliferation of smartphones and increasing levels of computer literacy, there is encouraging uptake of applications for better money management. From the technology perspective, it is now possible to build powerful algorithms with AI and Machine Learning to handle complex financial data.

Ok, but why should banks be interested? There is one distinguishing aspect: A PFM offering, by design, benefits both the bank and the customer.

For the bank, it represents an attractive option to revitalize customer engagement, an indispensable business need. From the user’s perspective, almost all other marketing techniques employed by banks may appear to be self-centered. Today’s customer finds such “push-down-the-throat” methods repulsive, rendering such approaches ineffective.

What’s extremely significant is that almost all the first-time PFM users are choosing the app suggested by their bank or credit facilitator, rather than a generic one from a third-party software company. Personalized financial management services have become pivotal in customer retention strategies. These tools are not just for the wealthy—they can be designed to adapt themselves to bring benefits to all classes of customers.

What do customers expect from a personal finance management app?

In broad terms, taking control of one’s finances is what customers look for. In practice, this means tracking of expenses and incomes. But PFM goes beyond mere ledger-keeping. Modern apps enable the planning of transactions with smart budgeting tools. Data analytics helps proactive suggestions on ideal investment options.

For all-round usability, customers expect a wide range of features: aggregation of data across multiple banks and automatic classification of transactions; tracking of investments and wealth accumulation presented in real-time; an array of dashboard views, reports, and summaries as per the user’s preferences; forecasting of needs for smart planning; suggestions based on peer-group analysis; alerts when expenses overshoot budgets; life-stage-based investment advice; gamification for advanced users that want to explore much beyond the standard features offered. To top it all, ease-of-use is important, as customers may be put off by a steep learning curve.

What can banks hope to achieve?

By offering such a tool, banks transform their image from one that reflects a business-centric entity into one that represents a customer-oriented financial advisor. The positive impression thus created translates into customer trust. What follows is an easy mechanism that facilitates banks to understand customer needs better. The acquired market intelligence helps the development of better products and services for the entire market. With individual customers, the strengthened relationship opens up opportunities to enhance business growth by pitching for specific and relevant services.

What should banks look for in a Personal Finance Management (PFM) app:

Customizability is of vital importance. Besides being compliant with the organizational processes, the app should reflect the bank’s ethos and identity. Branding is a must-have feature, with the company’s logo and corporate design elements incorporated into the user interface. The app should fulfill industry-standard security and data privacy standards for universal acceptance.

When evaluating vendors, banks should look for technical competence, affirmed by the successful delivery of similar fintech products in the market. The vendor should be able to assure quick responses, both for upgrades and bug fixes. An administrative interface should be made available to the bank’s IT and marketing teams to manage customer-specific notifications and alerts. Administrators should also be allowed to generate analytics reports to monitor usage and possible issues.

Win-win benefits

From the customer’s point-of-view, a wealth management app could be handy for holistic money management. Compiling information from various accounts, identification of spending patterns, budgetary planning with calendaring, monitoring the health of investments, and proactive alerts on expenditures offer unmatched benefits, not hitherto possible on a single platform.

For the bank, the strategy pays for itself quickly.

• Obtaining authentic knowledge of customer needs is vital for any organization. With a PFM, banks can understand the customer’s financial status comprehensively. Using data analytics, banks can extract significant insights, while being compliant with privacy and security norms. Upselling and cross-selling are undoubtedly effective in multiplying sales revenues. By positioning products and services that meet the exact needs of customers at the appropriate time, the business can grow further.
• In today’s competitive environment, products and services need to be optimized to fulfill customer aspirations. Acquiring authentic knowledge of market needs is vital for success. A well-designed PFM can help banks understand customers’ financial status thoroughly. With insights unearthed by data analytics, opportunities for cross-selling and upselling can be identified. By positioning products and services that meet the exact needs of customers at the appropriate time, sales revenues can multiply.   

An extension of this approach is to engage with leading merchants as an affiliate. With accurate recognition of requirements, customers get referred to the suitable business house providing the specific product or service, benefitting all three stakeholders: the bank, the merchant, and the user.

How to ensure success with PFM

Enticing customers to start using a new app may seem an uphill task, but here are some proven ideas that can help. A multi-pronged campaign is required. Being a digital tool, this calls for modern marketing techniques such as social media marketing, emails, and web ads rather than conventional approaches. Another common, yet, very effective method is the “first-use” offer. This entails incentivizing the use of the app by extending a special offer—it could be a discount at a popular store, a coupon, or a gift—sent to the user after completion of the registration or the first transaction. Once the customer realizes the utility of the app, further motivation may not be required. Loyalty points and special deals such as a discounted interest on mortgages may be extended to regular users to reward their participation.

PFM from toCode

Developed to meet the specific needs of banking customers, AI Wise from toCode is a feature-rich app that checks all the boxes in terms of the expectations of banks and end-users. The completely customizable PFM app inculcates judicious money management skills in customers while helping banks make insightful decisions. To learn more, click here.