Best Practices in PFM

Offering Personal Financial Management capabilities, commonly known as PFM, can place financial institutions at the center of their clients’ financial lives and in the role of trusted advisor. The promise of PFM is to help individual users manage their financial lives more efficiently, more effectively, and with greater confidence. PFM offerings have been prominently featured at the financial innovation conference Finovate for the last several years.

But my sense, from talking to industry analysts and practitioners alike, is that PFM hasn’t achieved its potential; that PFM, as implemented today, isn’t meeting the needs of financial institutions or their customers. In particular, there is a widespread perception – and some frustration – that engagement figures for PFM are quite low.

To shed some light on the issue, I’ve turned to Caroline McNally of Yodlee. Yodlee has its own PFM offering called MoneyCenter, but Yodlee is most notably the plumbing behind many other popular brand-name PFM offerings, including Personal Capital, LearnVest, and 7 of the top U.S. financial institutions, which gives them unique insight into how to make a PFM offering work.


Q. Is there a standard definition of PFM accepted by the industry?
A. No. That’s part of the problem. PFM is a murky term that means different things to different people. In many ways, PFM has been stuck with a connotation of pie charts and budgeting tools. As soon as PFM became a hot buzzword, everybody started calling themselves PFM providers. We actually prefer not to use the PFM terminology. It’s really about engagement, insight, and action, when it’s done right…

Q. Does PFM need to be a complete solution for financial management to be of value, or are there more limited services that can be offered as PFM that engage customers and provide value?
A. We believe that PFM is (and should be) as different as individuals are. There is no one-size-fits-all PFM panacea. PFM should be flexible enough to both answer short-term questions, like “can I afford this?” as well as long-term questions like “am I saving enough for retirement?”. We believe there should be both a comprehensive, secure area where those longer-term questions can be housed, analyzed, tracked, and reported, as well as discrete Apps that can be swapped in and out as needs change, to help answer immediate questions. What cannot be compromised or argued is the underlying data infrastructure supporting the analysis and advice. If the data is wrong, or not available, then PFM as a promise will fail. Period. The data is key and the functionality on top of the data can be as rich and diverse as your own imagination.

Q. What problem does PFM solve for banks and other FIs?
A. For Financial Providers, the role of trusted advisor has been seriously damaged in the last decade. People have flocked to outside services for analysis, tools, and advice that used to be the sole domain of a trusted institution. PFM helps FIs move beyond the bits and bytes of just checking an account balance or recent transaction into a deeper engagement model where customers can proactively manage their entire financial life, from setting goals to managing future cash flow, to protecting against fraud, to managing shared finances with others, all aimed to help customers become more informed about their finances.

Q. Is PFM a revenue opportunity for banks and credit unions?
A. It is, but there’s also a “right thing to do” part of the ROI model. Our research shows that people really do want help, and FIs do have an edge when it comes to trust. There’s an opportunity here for FIs to fundamentally reposition themselves and become not only the safe place to house your money but also the cool place to help you manage your money. But of course it’s still a technology buy decision, so there is revenue opportunity as well from deeper insight and engagement, better cross-sell, and revenue share with third party apps.

Q. Where does PFM add value for consumers?
A. PFM is about insight, action, and control. Many people can’t answer simple questions about what they have (financially) and how they spend. We believe that this kind of insight can lead to behavioral change when there’s motivation and actionable advice. But it has to be easy. Can you imagine a world where no one spends more than they can afford? Where unnecessary debt is eliminated? What impact would that have on the global economy?

Q. There’s a perception that innovation in PFM outstripped consumer demand. Is this accurate?
A. No. I think PFM just became too complicated. There are so many different things PFM tools can do that it can get overwhelming. That’s why it’s so important for PFM implementations to be intuitive – to surface functionality as the need arises, and to offer suggestions based on actual behaviors, so there’s a clear context and a clear value. People need a reason to engage.

Q. There’s more than a little consternation among industry observers regarding low PFM uptake. Does PFM require a level of commitment most consumers are unwilling to make? Or is the commitment lacking on the part of banks and FIs?
A. This is a really interesting question. PFM definitely gets a bum rap for adoption, but we have customers with 100% adoption and extremely high levels of usage and satisfaction. The difference? Implementation and marketing. There are many facets to a good implementation of PFM. Let’s just say this is not a “build it and they will come” scenario. It needs to be engaging, integrated, actionable, and easy-to-use. And people need to understand what they can do – what’s the value? With a good implementation and proper marketing, PFM is a gold mine for customer engagement.

Q.You say: “For individuals struggling with money management concepts, the PFM services offer the opportunity to learn more, spend less and save more and hedge against financial adversity. It empowers your customer to take a focused self-inventory of their finances and plan positive changes.” But how do you get customers who need this to actually do it, and stick with it?
A. Not all bank customers are surfing the web looking for PFM solutions! For that reason, PFM tools need to be marketed and clearly explained. We advise our clients of these best practices:

  • Make sure customers know about it and understand it. Put it where they can see it, and make it prominent. Have an integrated marketing plan that reaches customers at all touch points: website, mobile, tablet, in-branch, when talking to customer service representatives, when reviewing their statement, etc.
  • Address the barriers. One reason we see abandonment during enrolment is due to consumer perceptions about privacy and security. Make clear assurances, and be transparent.
  • Engage customers throughout the year. Our bank customers who launch and then go silent often see attrition. Our bank customers who keep the conversation going, through deeper engagement with product tools, relevant seasonal messaging, setting alerts, etc., experience the rewards that PFM delivers: more loyal, engaged, and active customers.

Q. Are the most active PFM consumers those who need it least?
A. Yes, and No…initially, yes – the people who first flocked to PFM were the ones who already had some handle on their finances. But we’re seeing increasing interest and usage in the Underbanked and other market sectors where real-time insights has an opportunity to make a real impact on purchase decisions and behaviors. The tide is definitely shifting. With more mobile tools, better marketing, and increased distribution of PFM, we think the opportunity to create a more informed and fiscally responsible culture is both possible and probable.

Q. Can PFM (should PFM) do for people the things they need to do but don’t want to do themselves?
A. Let’s face it, we live in a world of immediate gratification and always-on, always-connected information bombardment. We all know what we SHOULD do (diet, eat better, budget, not buy those shoes…) but it’s really hard to manage all this and still live in today’s society. If we can create tools that help even a small percentage of the population make better financial decisions, then I consider that a win. And if we can make that small percentage a large percentage, then we’ve had a real societal impact. There’s nothing wrong with getting help. I’m wearing an arm-band right now that helps me track steps and calories. It makes me think about taking the steps vs. the elevator just by being on my wrist. PFM should do the same for financial decisions. We can’t stop you from buying those shoes, but know what the impact will be and you’ll be better for it.

Q. Has the worldwide decline in trust in financial institutions had an impact on PFM usage or adoption?
A. I think it’s not the decline in trust but rather the economic recession that has had the impact on PFM usage. Unemployment, rising gas prices, housing market crash – these things create enormous amounts of anxiety and nothing will inspire changes in spending more than fear. The good news is that many of the habits created during the recession are good ones, and many of those habits remain after the cloud lifts and the fear subsides. The question is…can we teach our children financial habits when they’re young, before bad habits are formed, that will lead them on a path toward financial security and well-being just through awareness and education? I think we can…

Q. Are consumers who use PFM better clients already, or does PFM make them better clients than they were before?
A. We think the answer is BOTH. Certainly, people with good financial habits are drawn to tools and services that make money management easier and better. But our data also show that active and persistent use of PFM tools can, over time, create better financial habits that drive smarter financial decisions and ultimately create better customers for the banks. That is, if, like us, you consider the most financially informed and responsible consumers the best customers!

Best Marketing Practices

Q. What has Yodlee learned about creating effective marketing and education campaigns that drive PFM adoption? How can customer adoption rates be improved?
A. We see the highest adoption rates when our bank customers integrate PFM within online banking (not treat it as a separate tool/feature), with a segmented approach to messaging (i.e. millennials will engage with the tool differently than super users, small businesses, or high net worth individuals).

Q.How are the smartest banks and credit unions getting clients to engage with PFM?
A. They are…

  • Creating an engaging and integrated home page experience that surfaces important information across multiple accounts (like alerts and spending analysis)
  • Marketing the value of the service to customers through every channel, both online & offline
  • Interacting with customers and with the technology to understand usage behaviors, popular functions, barriers to usage, etc, in order to make continual improvements in the user experience
  • Adding “apps” to enable segmented experiences to meet the needs of different user audiences (e.g., millenials vs. small business owners)
  • Creating a multi-channel PFM experience that delivers unique functionality on every device and enables a seamless experience regardless of which channel a customer chooses at any given time.

Q. What differentiates a successful PFM implementation from a poor one?
A. I think of the line from the film Field of Dreams – “If you build it he will come.” Well for PFM this isn’t true – banks and credit unions can’t just turn it on and hope that their customers will find it. They need to market and message it prominently, year round, based on an integrated strategic plan. And, a good PFM implementation is integrated, mobilized, and engaging, which requires work on the user experience to understand who is using it, how they’re using it, what they need, and how to deliver an experience, or set of experiences, that customers love.

Q. Yodlee’s PFM offering to consumers is called MoneyCenter. What are you learning from this experience that you can pass on to “wholesale” clients?
A. Yodlee MoneyCenter helps us innovate and test our ideas so that we can deliver best in class products and solutions to our clients. We primarily use it to test and improve the user interface. If you haven’t seen it yet, our newly launched “view,” called “Personal View” is an example of a streamlined and simplified user interface and our end user testers are loving it!

Q. Many FIs say they expect PFM will allow them to engage more deeply with their clients. What does that really mean and what are the right ways to go about it?
A. PFM tools are more robust that basic online banking tools and deliver a deeper benefit. With all accounts in one place, consumers can finally see their full financial story – and that is a driver that enables views into features like net worth, cash flow, and setting budgets and goals, and these views are simply impossible if they have accounts in separate places. With that major benefit, we see customers logging in more often and using their bank as a one-stop-shop for finances, which deepens engagement and leads to increased loyalty and satisfaction. The customer insights derived from PFM usage also helps banks better understand their customer needs and deliver more tailored products and services.

Q. How do you segment PFM offerings? Which are currently successful and which are not?
A. We’ve seen very successful segmentation strategies with millennials and retirees. Check out PNC Virtual Wallet and USAA!

Q. How are the best bank marketers using PFM to drive cross-sell opportunities?
A. Today this is still an untapped opportunity. We have some bank customers outside the U.S. who have seen phenomenal success (4x increases) using PFM data to tailor product marketing offers. Let’s face it, who isn’t sick of getting junk offers in the mail for products we don’t need, don’t want or already have. I, for one, would love to see offers for products that actually offer me something of value based on my habits and preferences. Reward me for the places I love to shop and the things I love to do, like travel. Make it specific to my life. PFM offers a unique opportunity to do that – to combine information about preferences, behaviors, transactions, and more to create a unique picture for every single person and to custom-fit products and services for like-minded people. It’s coming. And it’s coming fast. The data is available. The marketing capabilities are catching up. It’s a new horizon for marketing that we find particularly exciting because it’s a huge win-win for everyone.

Q. Can PFM capabilities be integrated successfully across channels? What are the best cross-channel implementations you see?
A. I think we’re still in the early stages of real cross-channel integration, but the opportunity is huge for PFM to be broken into pieces and put back together in different channels as part of a seamless experience.

Q. How can banks and FIs make PFM a competitive advantage?
A. PFM today is table stakes. Consumers already expect to be able to set a budget, get alerts, see how they’re spending, and view accounts from different institutions. We believe that the app model – in our world the “FinApp Ecosystem” – has a real competitive opportunity. Many of our bank customers are using our APIs today to build their own proprietary apps, powered by PFM data, to offer unique functionality to their customers as part of an integrated online/mobile banking experience. We believe banks will be running their own developer hack-a-thons and engaging more actively with outside creative experts to build exciting new capabilities that create a truly differentiated customer experience. Because of the flexibility of our Platform architecture, we make it easier for banks to innovate – to build and deploy new apps – within a secure and compliant infrastructure. So, we’re helping to break some of those shackles to empower a greater speed of innovation and agility for banks. It’s a very exciting time to be in financial services!


Q. Should PFM be at the center of the mobile banking experience?
A. YES. Nowhere is PFM more actionable than on a mobile device. This is what we have with us when we’re actually making purchases. This is where we should be able to get real-time discounts, advice, and alerts that put the purchase or transaction in a larger personal context. Because knowledge is power. Period.

Q. What needs to be different on a tablet or phone as opposed to a desktop or laptop?
A. We all know that the user context is different for consumers using a mobile phone, a tablet or a desktop/laptop. Differences in the intended engagement duration, user attention to the device, environment, and connectivity all lead to applications that serve information and provide users with options in a manner appropriate to each device. PFM is an extremely powerful tool for the mobile environment, but the user experience and the delivery & presentation of information are critical.

  • Influence on PFM Application Development (mobile/tablet/desktop)
    • Data must be visual and concise, providing conclusions – not just raw data
    • Engagement loops need to be short (varies by device)
    • Data Alerts must be actionable and actions must be automated using preferences and auto-complete
    • Security must be strong and seamless using natural pattern authentication instead of password entry or pin code entry
    • Most “planning” activities will happen on the laptop/desktop (e.g., debt reduction, retirement planning, asset allocation, goal setting, etc.), with real-time decisioning being more important on the phone.
  • Providing a Compelling User Experience (mobile/tablet/desktop)
    • PFM Applications must easily and quickly answer three questions for mobile users:

1. What is the status of my finances right now?

    1. Display balances of accounts held at different financial institutions in one place. Quickly and visually.
    2. More information can be displayed on larger screens (tablets & desktops), but surfacing a real-time snapshot (across multiple accounts) is key for immediate, on-the-go decisions

2. Where will my finances be during the next week to 4 weeks?

    1. Provide a Cash Flow projection view accounting for all upcoming Bill Pays and recurring expenses
    2. More information can be shown on the laptop/desktop to enhance the experience, such as more transactional details and transaction categories
    3. Given the additional emphasis on planning on the desktop, the cash flow display should include interactive modifications to show the real-time and future impact of changes

3. How have I been spending my money?

    1. Expenses Analysis graphical views with the ability to drill down into the details, including 100% categorization and the ability to change transaction categories
    2. More information about spending patterns can be provided on larger displays, including trends by merchant, comparisons to others by zip code or income level, etc.
    3. On the laptop/desktop, spending analysis merged with budgeting can provide a very productive experience to consumers for future planning and financial control

Q. Tablet users are twice as likely to use PFM tools as other folks. Does PFM drive mobile banking usage?
A. Yes, PFM definitely drives mobile banking usage.

  • The number of mobile-only banking users is significant in the U.S. – anywhere from 15% to 66% of US mobile banking users are mobile-only users. Here is an article that claims 40% to 66% of mobile banking users are mobile-only:
  • Having a significant number of mobile-only banking users answers the questions we have around feature parity expectations. Mobile banking users that do not access banking data via any other channels require all features and functions to be available on smartphones.
  • Without PFM, mobile banking provides only the basic raw data about your finances. PFM adds the layer on top of mobile banking data that users have come to expect from all of the applications on smartphones. Users need an analysis of the data, which empowers them to make decisions and take actions quickly. PFM is a killer app for mobile, especially as more collaborative decisioning is built into these tools.
  • Mobile banking users are 53% less likely to attrite, and 32% more profitable. This level of engagement from mobile banking users also translates to more demanding consumers that want all features on the phone available all the time. More on this here:

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