We all know that Knowledge is power, but if it is specific & actionable, then it becomes deadly in the hands that wield it. Personal Finance Management is one such tool that has immense potential.

Most customers have 2-3 bank accounts, 1-2 credit cards, a trading/demat/depository account, PF, PPF, few wallets, and of course, tons of loyalty accounts. And there’s property, jewellery, vehicles, mutual funds, insurance plans, etc.

Given all this, it is very difficult for customers to get a holistic view of one’s financial holdings & liabilities across these diverse accounts in a timely manner.

It is also quite a challenge to answer crucial questions on net-worth, upcoming expenses, financial planning, etc.

Enter Personal Finance Management (PFM) offering One-view of all financial & quasi-financial relationships, enabling not only expense analysis but also goal setting, progress tracking & timely alerts.

PFM solutions available in the market, typically offer the following:

  • Add accounts: One time activity for existing relationships, and then, as & when required
  • Expense categorization:
    • Categories/sub-categories across income, expenditure, transfers, etc.
    • Based on transaction details, auto-categorization happens; modify categorization of transactions, if desired
    • Set threshold alerts
  • Budget goals: Add amounts, purpose, timelines, sources, destination
  • Reminders for bills/payments
  • Review dashboards on a periodic basis for
    • Net Worth & changes to it over time
    • Transactions & Expense categorization
    • Tracking progress v/s planned goals & making course corrections, as needed
    • Cash flow analysis: income v/s expenditure
  • Manage accounts/categories/groups/alerts as & when needed

A PFM solution typically works in the following manner – it connects with other banks/service providers to get updated data & can use their APIs directly (if made available). Even if the APIs are not directly available, there are other technical ways to get data using valid authentication protocols, as required by the destination bank/service providers. The login credentials are saved with industry standard one-way encryption, making it safe & convenient.

Some of the PFM platforms which have a B2B model, are providing their solutions on a white-label basis to Banks/FS entities, whereas some are trying to make their presence felt directly in the B2C space.

It is pertinent to note that Banks/Financial institutions were NOT the first ones to offer PFM solutions, even though quite a number of these data points originated from their own platforms and/or could have easily been gathered from their own customers. But it was the fast moving fintech players that started this vertical and are now dominating this rapidly growing space.

Banks/Financial Service Providers offering PFM solutions, stand to gain in the following ways:

  • Customers would tend to aggregate all their relationships with them
  • Better mindshare & consequently, a higher share-of-wallet with them
  • Since customers can plan their goals & track progress periodically, it should be possible to offer relevant, customized & timely solutions to them
  • Over time, become the primary account because of high engagement levels
  • Consequently, it would be really difficult to move such a customer away, as the level of stickiness achieved would be formidable
  • Other aggregate data should help in better understanding of customer segments

Currently most PFM solutions are info-only; i.e. no transaction can be initiated within the PFM platform. If any user desires to carry out a transaction, it has to be done at the destination bank/service provider, on its respective platform.

But going forward, this might change and in the near future, it might be possible to do every transaction from one place; just like it is now possible to transact using only a Virtual Payment Address (VPA) that could be pointing to any underlying account – does not matter which bank!

If this were to happen, it would pose serious challenges to Banks/Financial service providers about their relevance in the customers’ minds & their importance in the grand scheme of financial things!

If you as a Bank/Financial Service Provider are not having plans of offering PFM solutions, be cognizant that PFM is a very sticky product because of the time/effort invested in setting everything up. So if you’ve lost the first mover advantage, you’ve lost the opportunity of being the primary account & it would be very difficult to win back the customer!

Banks/Financial service providers really need to move fast otherwise they might be reduced to just carrying out transactions and handing over the complete relationship to fintech players, who, by the way are becoming more and more popular. To me, it seems that it is only a matter of time before B2C-driven fintech players gain prominence, as they are very much customer-focussed and they offer the ease and convenience like never before!