Consumers are looking for a way to monitor their financial health. Personal financial management (PFM) apps can act as the thermometer, gauging the temperature and giving people an idea of where they currently stand financially. PFM tools for banking can also go a step beyond checking the status of a person’s financial situation. They can also provide insights and advice on financial issues, both issues that affect an individual consumer directly and those that affect the wider economy.
PFM solutions can come directly from the bank a person uses or from a third-party app. Whatever the source of the PFM tool, an individual can use it much like they use social media, to check up on what’s going on in the world. They can also use the information the PFM shares with them to improve their financial picture or plan for their next money-related move. Whether you develop apps for a bank or are a fintech company that provides third-party PFM open banking software programs, learn more about how PFM can change the financial landscape for the better.
For some people, personal finance is simple. They might have a savings account and a checking account, and that’s all. But other people have a more complicated financial situation. They might have student loans, a mortgage, car loans, credit cards, retirement savings, and other investment accounts, in addition to checking and savings accounts. PFM banking tools can provide a place where a person can access all of their financial data. The most valuable PFM apps will provide a user with actionable advice on what they can do to improve their financial health or reach particular goals.
PFM apps can help to improve a consumer’s financial health in several ways:
- Sending low-balance notifications: PFM can help people avoid over-drawing their accounts or spending more than they planned by sending an alert whenever the balance in a designated account approaches a certain amount.
- Directing consumers to accounts or financial products that have better rates: Third-party PFM tools often search for financial products that align with the needs of users or that would benefit a user more than the accounts and services they currently use.
- Analyzing an individual’s spending: A PFM app can analyze an individual’s spending habits, pointing out instances when they might spend more than average and helping an individual get back on track with their goals.
- Sending alerts after suspicious activity: In tandem with tracking and analyzing a person’s spending, PFM apps can also alert an individual when any unusual activity occurs, such as purchases made in an unfamiliar location or lots of small purchases made right in a row.
- Sharing relevant market and financial news: There is a lot of financial news to sift through and a lot of it isn’t particularly relevant to the average consumer. Based on the information a user shares with a PFM app, the app can highlight news and market changes that affect an individual’s financial situation.
- Offering individualized advice: PFM apps can also provide users with customized advice, such as guidance on opening a new savings account or credit card.
PFM Players in the Market
Today, numerous personal financial management banking apps are available. Generally speaking, the apps can be divided into three categories: wealth management, budgeting, and saving and investing.
1. Wealth Management
Wealth management PFM apps provide consumers with a way to review all of their accounts from a single portal. The apps typically connect to a person’s saving, investing, and credit card accounts, allowing them to keep tabs on their financial situation and helping them set goals for the future. Some of the more well-known wealth management PFM players include:
- Mint: Mint is a money management app that pulls data from all of a consumer’s accounts, providing them with a big picture look at their finances. Whenever a person makes a purchase with a card or transfers money into or out of an account, Mint tracks it. Mint also offers tips and suggests to users to help them maximize their money and make the most of their financial goals.
- Personal Capital: Like Mint, Personal Capital pulls all of a user’s accounts together. The wealth management app is particularly focused on retirement planning and tracking. Some of its features include an investment check-up, which compares a person’s current asset allocation to an allocation that would put them on track to reach their retirement goals and a fee analyzer that reveals hidden fees that can reduce the value of a retirement account.
- Prism: Prism focuses on getting people on top of their bill payments. A person adds their bank account information and billers to the app. Prism will send billing reminders to users so that they don’t pay late or miss a bill. There is also the option of paying bills directly through the app.
Budgeting apps provide people with a way to track their income, plan their spending, and then monitor where their money goes each month. Different budgeting apps use different methods and some individuals might find that it takes a bit of trial and error before they find a budgeting app that matches their style. Some options on the market include:
- You Need a Budget (YNAB): YNAB encourages people to create a zero-based budget, meaning they give every dollar they earn a purpose. At the end of the month, the budget should zero out. The app uses money that a person has already earned to plan for the upcoming month’s spending, which can help individuals break the cycle of living paycheck to paycheck.
- Mvelopes: Users of Mvelopes to divvy their money up into separate envelopes, or spending categories. Once an envelope is empty, the consumer shouldn’t spend from that category for the rest of the month. Mvelopes has a goal that is similar to that of YNAB: it encourages people to assign every dollar that they earn a role.
- Every Dollar: Every Dollar encourages people to track their income, expenses, and actual spending in the app. It connects to bank accounts and automatically pulls in new transaction information, helping to streamline the tracking process.
3. Saving and Investing
The third type of PFM app focuses on simplifying or streamlining the saving and investing process. The apps differ in how they do that. Some function as savings and checking accounts and round up purchases to the nearest dollars. The extra amount gets deposited into a savings account. Investing-focused PFM apps automate the process of choosing stocks or other types of investments.
Some examples of savings and investing focused PFM apps include:
- Acorns: Acorns is an example of an app that rounds up purchases and sets the extra amount into an investment account. In addition to making investing seamless for users, the app also offers financial content and advice to help educate consumers.
- Robinhood: Robinhood aims to simplify investing by allowing people to purchase fractional shares. Instead of requiring someone to invest large amounts upfront, the app lets people get into the stock market with just $1. There are no commission fees on trades, either, making investing even more accessible.
- Stash: Like Robinhood, Stash allows users to get started with investing for a small amount of money, in some cases, less than $1. In addition to making investing more accessible, the app also has budgeting and goal-tracking features.
Many of the big PFM players on the market today are third-party providers, rather than banks. Some, such as Stash, are neobanks, meaning they offer consumers access to savings or checking accounts but don’t have traditional, brick-and-mortar branch locations. Banks interested in developing their own PFM tools can do so and can win over new customers and engage with existing ones. One way that banks can set themselves apart from existing PFM solutions is by offering apps and tools that cover multiple categories.
Why Banks Can’t Miss Out on PFM
With third-party providers and neobanks offering plenty of personal financial management solutions, traditional banks might wonder if they have missed the boat on offering tools to their own customers. Currently, many banks do have some sort of PFM feature, but the adoption of those features by customers has been low. There might be several reasons why there isn’t more widespread use of PFM tools offered by banks. One notable reason is that the tools available aren’t always very engaging. Merely tracking spending doesn’t give a consumer much useful information, for example.
If a bank were to develop a PFM tool that provides actionable insight, the institution would get a considerable leg up over competitors. Although neobanks are starting to gain ground and market share, existing regulations put the ball in the court of traditional banks. Providing customers with PFM tools that are custom-tailored to their goals and needs will allow those customers to see the value of their bank and the value of the apps and tools available from it.
Building a PFM Solution
A PFM app can help a bank or financial institution set itself apart from the others, by offering consumers tools to help them improve their financial situation. PFM tools can also benefit banks, too, thanks to open banking. Open banking allows third-party apps access to a consumer’s private banking information. Without open banking, apps like Mint or Acorns wouldn’t function as well, as they wouldn’t be able to sync automatically with a person’s accounts. PFMs from banks also need open banking if they hope to provide users with an overall picture of their financial health.
Being able to access a user’s accounts is just part of the process when building PFM. Ideally, the PFM app will be able to analyze the data presented to the app. Data analysis is what allows the app to make recommendations to a user. For example, after pulling details from a person’s checking account, the app can analyze the data to determine which spending category each transaction belongs in. From there, it can let a user know if they are close to the limit set in a particular budget category or if they have overspent in the category for the month.
An app can also use the data to make recommendations to a user, such as guiding them toward a savings account with a high interest rate or recommending a credit card to them based on their credit score or spending habits.
Building a PFM solution for a bank or financial institution can seem like a challenging project, one that requires a lot of knowledge of coding and technology. However, other companies offer application programming interfaces (API) to make app-building easier. In addition to personal finance APIs, white-label PFM solutions are also available. Banks and fintechs can attach their name and branding to a white-label PFM product, streamlining the process of developing and building an app.
Imagine someone else doing the heaving lifting, while your financial institution gets to take all of the credit. That’s a bit like how white labeling works. With a white-label personal financial management app, your bank or fintech can put its branding and name on an app that was developed and coded by a third-party. There are several benefits of using a white-label PFM. For one thing, you can take advantage of an established company’s knowledge and experience with technology. Your company won’t have to spend the money or time researching and developing an app from scratch.
Another benefit of white labeling is that it speeds up the process of getting an app out on the market. Once you decide that PFM tools are a good option to offer your customers, you can create a no-code app quickly.
After your bank or company has rolled out the PFM tools, you can expect to see ongoing benefits. For example, as more of your customers see the advantages of using the features of the app to manage their finances, track their spending or develop a budget, they are more likely to spend more time with your products. As they spend more time using the app, they might be more inclined to explore the additional services or accounts your bank offers, increasing engagement, and deepening the customer relationship.
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