In a post titled PFM – not just for the select few anymore?, Javelin Research wrote that PFM (personal financial management) tools:
…have the reputation of being for consumers willing to put in the time to manage the minute details in order to receive activity reports to keep them abreast of their financial lives. But with the release of MS Money Plus, that all may be changing. With a capability that allows the user to view [a] change in the form of a widget/gadget without opening MS Money, the usefulness to those consumers who don’t necessarily want/need the full capability MS Money as offered by the desktop application could be a draw for a large customer base.”
My take: I don’t doubt that MS Money’s enhancement improves the usefulness of the tool. But: 1) By itself, I don’t see it drawing many new consumers to the ranks of PFM users, and 2) Growth in PFM usage is happening for other — and more important — reasons.
People have a few reasons for not using PFM tools: 1) Managing their financial life isn’t that complex to require a tool; 2) Managing their financial life isn’t important enough to them to use a PFM tool; and 3) While their financial life may be complex and important enough, it’s too much work to use a PFM tool.
I have a hard time seeing how a widget or gadget overcomes any of these reasons. Analogy: Most of us use less than 1/2 of the features available in MS Word. We don’t not use it because it’s too full-featured.
On the other hand, PFM usage is going to grow — in a big way — regardless of what MS does with Money. There are three primary drivers of this growth:
- The Internet helps to take a lot of the manual labor out of the process.
- Gen Yers are move involved with and educated about their financial lives than Boomers (or Seniors, I’d bet) were at the age.
- PFM tools are beginning to help consumers make decisions, and not just track transactions and get alerts to changes.
The result: The Jwaalas, Geezeos, Mints, and Wesabes will see a lot of interest in — and use of — their PFM tools in the next few years. As for MS Money and Quicken, I’m reminded of the line from Monty Python and The Holy Grail: “I’m not dead yet.” I have a lot of respect for the people from those firms, and wouldn’t count them out.
It seems to me, though, that some PFM providers don’t grasp the importance of the third growth driver. Answering the question “what happened?” isn’t as helpful as answering “what should I do?”
And then there are PFM providers who do get the last point, but miss — or wish away — the fact that the advice provided must be objective advice. If there is one thing that consumers are really good at, it’s sniffing out conflicts of interest.
So who’s going to win the battle for future PFM users? Whoever provides the easiest-to-use tool with the broadest, most active community that delivers the highest-quality, objective advice.
This will force the PFM providers to make some tough decisions about their business model and marketing strategy. What does the future hold?
1. Privacy/security will be a cost of entry — not a differentiator. The emerging PFM providers would be foolish to differentiate themselves on their privacy/security policies and approaches. They’re in a period of category building — and any privacy/security violation and PR issue hurts everyone, not just the provider affected (for an analogy, see my Coke/Pepsi post).
2. Community composition will emerge as a differentiating factor. Do I really care how a bunch of 23-year olds spend their money or how they save and invest? Maybe not (Ok, NO). Today, in the name of privacy/security, at least one of the PFM providers doesn’t look at the demographics of its community members (disclosure: I don’t know what the policies are of all the providers mentioned here). In the future, however, PFM providers may need to offer more information about the community’s profile, both to lure new users and develop third-party partnerships.
3. One or more PFM providers will try to be an infrastructure play. Wesabe has said that it doesn’t disintermediate financial institutions. It’s absolutely right. What it does do, however, is fill a value void — it provides value to bank customers that few, if any, banks provide today. Why haven’t banks built what Wesabe has? a) They’ve been stuck in the old-world thinking of what PFM is (i.e., tracking vs. advice); b) They’ve haven’t figured out how to make money with it; and c) they think it would cause customers to switch.
As competition for PFM users heats up, someone (I have no idea who) will try a white-label approach and become FIs’ own-branded PFM tool. Sound like a bad idea for the banks to do this? No way. Even smaller banks have hundreds of thousands of customers who make for a ready-made community. And since the advice PFM tools provide go beyond simply “get a higher rate over here,” it’s still a smart way to fill the money management advice gap that exists today.
There’s no question that there is a very visible segment of highly rate-sensitive consumers out there who will move their money for the slightest increase. But there’s also a huge group who won’t — and who will not give up the objective advice that they would be getting by jumping to another institution that doesn’t provide objective advice.
All of this may play out very differently. But I’m willing to bet that the winner(s) won’t be determined by who offers the most widgets, gidgets, and gadgets.