Are PFMs Hurting Banks?
Why Banks Need to Prioritize Personalized Financial Guidance (PFG) Instead
Financial wellness is a hot topic right now – and understandably so.
As inflation soars and interest rates climb, consumers increasingly worry about their finances and the economy. They’re even dipping into their own savings to cover basic living expenses, which they know they shouldn’t.
At the same time, consumers are often not all that savvy when it comes to managing their personal finances, regardless of how well the economy is functioning. Even the wealthiest struggle to keep things straight. Fortunately, most consumers at least know how little they know about finance and – more importantly – want to improve and make better decisions.
They’re also looking to financial institutions for that guidance. According to a recent survey, 41% of respondents wished banks provided more personalized offers or information to help them achieve their financial goals. Right now, that goal is keeping their head above water.
But broadly speaking, goals can range anywhere from saving up for a vacation, getting out of debt, or even stockpiling funds for retirement. Either way, consumers are looking to banks to help provide solutions on how to meet those goals – and banks are outright failing them.
Why? Look no further than traditional PFMs.
Over the last decade, bankers have been obsessed with leveraging Personal Financial Management (PFM) tools within their digital banking apps with the intent to provide customers with a better experience that helps them manage their finances. Keyword: manage.
But how much value are they really providing?
Banks need to reassess their PFMs and ask if those tools really address their customers' needs – and in the right way. Here’s why.
PFMs lead to disengagement
Outdated PFMs do nothing more than provide fancy pie charts that show a customer’s spending, which are focused on the past and typically spotlight poor spending behavior. Getting alerts that tell you how many Starbucks coffees you purchased last month that could have instead gone to your savings account does nothing more than shame customers and discourage engagement.
Customers don’t need (or want!) any more negativity thrown in their faces. Simply put, no one likes hearing about how they’ve messed up with no suggestions or ideas for how to fix it. PFMs basically say, “Hey, you’re in a hole,” and that’s it.
Imagine if a fitness app told you how many cheeseburgers you ate last month versus providing you with positive encouragement for how many steps you took. You’d likely avoid that app altogether.
Financial wellness is no different. Positive encouragement is critical to keeping engagement high.
PFMs offer banks little ROI but a big competitive risk
Financial institutions often spend $300,000-$500,000 on their mobile application, complete with a PFM feature, but with no real ROI to show. This makes sense. If engagement is low, banks miss out on opportunities.
But it goes beyond that. With lower engagement, banks risk losing customers to competitors, particularly nonbanks. In fact, a new survey from Oracle found that over 40% of customers think nonbanks can better assist them with personal money management and investment needs, and 30% of respondents who haven’t tried a nonbank platform said they’re open to trying one.
Personalized Financial Guidance (PFG) i...