Five Theses on Personal Finance Management

• Personal Finance Management as a topic of the Bankinglounge in Berlin

• Four presenters: “Strands finance”, “Meniga/Crealogix”, “IND Group”, “Elaxy”

• Consensus on many points

• Five theses on developments in the field of PFM

• Critical juncture for banks

Last Thursday, the Bankingclub hosted the Bankinglounge in the Q110 branch of Deutsche Bank on Friedrichstrasse in Berlin, focusing on the topic of Personal Finance Management (PFM). The four providers “Strands finance”, “Meniga/Crealogix”, “IND Group”, and “Elaxy”, introduced their products and answered questions in the context of a panel discussion. Although each of the companies represented at the event claimed the title of “leading provider” for itself, they were mostly in agreement with each other regarding future developments and the future relevance of PFM. We can summarize and expand upon the discussion at the event by formulating five theses.

Thesis 1: PFM tools will become a commodity within two years

The companies were unanimous in their opinion on the issue of whether PFM will become a standard banking service. According to the presenters, various institutes will integrate PFM into their portfolios within the next six months, which means that PFM will be a commodity within two years. As a result, specific finance institutes will possess a distinguishing feature in comparison with competitors, but this feature will only set them apart for a limited amount of time.

Thesis 2: The differentiation among the products lies less in their functionality and more in the technological ability to rapidly implement them in the banks‘ service portfolios

Looking at the products presented at the event, it is obvious that they differ from each other only slightly in regard to the scope of their functions. While unique features do exist, in general the attempts to further simplify the tools for the user are quickly adapated by other concepts. Aside from the PFM tool itself, the true distinguishing feature currently seems to lie in the ability to integrate the tool quickly and easily into the portfolio of the bank.

Thesis 3: Multibank-ability, currently problematic in Germany, will soon be solved by the assessment of the German Federal Cartell Office

In March 2011, the German Federal Cartell Office considered the legal dispute between “Giropay” and “sofortüberweisung”. At the time, “Giropay”, an online payment service provided by the mutual savings banks, several cooperative banks and Raiffeisen banks, and the Postbank, presented the argument that customers giving their account information, including PIN and TAN numbers, to “sofortüberweisung”, violated the general terms and conditions of the banks. However, this supposed firewall of the banks did not hold up to legal scrutiny. According to the participants in the Bankinglounge, this means that the issue of multibank-ability as a necessary condition for customer acceptance of PFM tools in Germany will soon arise on its own.

Thesis 4: Although providers are focused on the tools‘ usefulness for customers, the word “customer” sometimes refers to individual clients and sometimes to the banks

Every provider emphasized the enormous usefulness for customers that supposedly arises from the availability of PFM tools: a complete and transparent overview of one’s own financial situation, improved planning and therefore harmonization of personal goals, and much more. However, the in-depth explanations of the presenters showed that the companies are focusing on another dimension of usefulness for customers, in this case, not that of the end client, but that of the banks: namely by exponentially increasing the amount of time spent on the websites of banks during online banking procedures. This combination of various stakeholder dimensions is not objectionable, but when transparency is truly supposed to be one of the main benefits of PFM tools for the end customer, then the differing interests of the participants must also be transparently communicated, otherwise the end customer will soon reject the alleged benefit of PFM tools.

Figure: Personal Finance Management – Perspective customer and bank

Thesis 5: It will be of central importance to banks to use the changed points of contact with customers for innovative advising approaches

Particularly the thoughts regarding Thesis 4 make clear that it will be of central importance to banks to carefully use the growing options available to them through the provision of PFM tools. PFM provides end customers with the opportunity to gain transparency about their finances. They can then use this information within the context of “self advice”. For their part, banks can use this new transparency to proactively approach customers; in this case it is of decisive importance whether banks do this in the interest of the customer or whether they are simply identifying a new business channel for commission-based turnover. Second, new questions and opportunities for action for end customers arise from the use of PFM tools. This requires changed advising options that banks should take into account and for which they should create new consulting options.

Banks can reject PFM tools because with them they would cannabalize the advising options offered by their own branches; however, they can also use the chance to transform the changed points of contact with customers into a constructive strategy of innovative consulting concepts that engage with the real needs and interests of the customer.

Strands finance
http://spf.strands.com

Meniga
http://www.meniga.de

Crealogix
http://www.crealogix.com/

IND Group
http://www.indgroup.eu/

Elaxy
http://www.elaxy.de/

Giropay vs. sofortüberweisung
http://www.heise.de/newsticker/meldung/Kartellamt-kritisiert-Banken-AGB-1205034.html
http://www.derhandel.de/news/technik/pages/E-Payment-Kartellamt-springt-sofortueberweisung.de-bei-7207.html

Picture credits „bank building“ within the figure
http://www.designcontest.com