Can PFM Help Align Cost With Value?

I’ve argued many times that banks’ biggest retail-related problem is the disconnect between cost and value. That is, what customers pay for versus the value they receive from the relationship (if you want to call it that).

Until recently, a growing percentage of banks’ retail revenue came from penalties and fees. Overdraft fees, out-of-network ATM fees, etc. These fees have not only been out of line with the actual cost the bank incurred to provide the “service”, but customers, by and large, didn’t understand or perceive the value they were getting for these “services.”

And you wonder why trust in banks has been (is?) so low.

Over the past year, I’ve given a presentation on PFM probably 15 times to various audiences at various conferences, clients, and webinars. In each of them, without fail, someone has asked me “do you think banks can charge for PFM?” My answer, without fail, has been “you’re asking the wrong question.”

Determining whether or not to charge for PFM is a question that reflects the historical banking mindset: What fees can we get away with charging the customer without causing mass attrition?

The right question banks should be asking is: How do we align the costs (fees, rates) we charge customers with the value they — and we — get from the product/service?

Now along comes Unitus Community Credit Union out of Portland, OR who will charge its members $2 per month to use its newly-implemented Geezeo-powered PFM solution. On the NetBanker blog, Jim Bruene noted:

“While online/mobile access will remain relatively fee-free, we’ll begin to see more fees for optional value-add services such as advanced financial management. Congratulations to Unitus for taking the lead on this one.”

Taking the lead? By adding yet another fee on top of the relationship for a “service” that many of the members have no idea whether or not they want and whether or not they’ll get value from?

I’ve done the research, and I know that PFM users get a lot of value from the PFM platforms they use. But PFM users only represent about 20% of the population. And if you’re a credit union with an average member age that’s higher than the average age of the overall population, then the percentage of your member base that is already using PFM — or inclined to — is probably even lower than that 20%.

Any bank or credit union that implements PFM is going to see an initial rush of enrollees. Of consumers interested in, or already using, PFM, there’s a good percentage that want it from their bank or credit union.

But what are you going to do to convince the rest of the population? PFM — in its offline form (Quicken, Money) — has been around for a long time. There are reasons why 80% of the population isn’t using it for budgeting or other types of financial management: Too much work, too little value, just not interested, etc.

Slapping a $24/year fee on PFM will be accepted by the minority of the population who get what PFM is and can do for them. But it’s going to be a major deterrent for getting the rest of the customer base to adopt it.

And that’s a really, really bad thing.

Because PFM promises to deliver — and does according to current users — more value to the customer than they’re getting today from the relationship. In the past, the value was somewhat intangible — security (I know my money will still be there when I wake up in the morning) and money movement (when I write a check, I know the money will be sent to the person/entity I’m paying).

Today’s consumers want — and need — more value from the banking relationship. They need help managing their financial lives. That’s where the tangible value lies, and what PFM promises to provide.

What banks (and credit unions) are in danger of doing is perpetuating the model/mindset of: 1) charging for the intangible value and giving away the tangible value because they’re afraid of losing customers, or 2) charging for the intangible AND the tangible, and risk losing customers.

This isn’t a sustainable model/mindset. We need a pricing model that aligns cost (price) with value.

I think Unitus should charge for PFM. But it needs to do it in a way that demonstrates that the value being derived from the account relationship is coming from the use of the PFM tool. Not that the PFM tool is some “add-on” service. Unitus — and other credit unions and banks — should actually limit the ability of customers to enroll in PFM use.

The mindset should be: Active users of this tool get a lot of value from it, and if you’re not going to be an active user, diligent about managing your financial life, then we’re not even going to let you use it. And oh, by the way, to you active PFM users: We’re going to charge you for using PFM, but give you other services for free.


8 thoughts on “Can PFM Help Align Cost With Value?

  1. Banks are all struggling with the question of what to charge for and how much to charge. I have accounts with twenty to thirty banks right now (mostly because I review them for Consumerism Commentary) and none charge for PFM. The PFM services vary among Direct Connect, Web Connect, Yodlee-only, and none. I realize, however, that offering these services comes at a great expense, so I expect more banks will be charging as they realign their post-Credit CARD Act revenue plan. I don’t fault the banks for charging for this service, but as a consumer, as long as free options exist in the marketplace, and those options are for a service that’s identical to the paid options, I’ll be a customer of the free option.

  2. Ron, Maybe I have a case of the Friday’s but, I’ve read this three times and I’m still not sure what your final verdict is. Charge or not?

    Fees will not be popular, but I like this one because it’s only $2/mo and PFM is easily worth that. Plus if you pay a fee for something you are more likely to actually use it. Certainly, the fee cuts down on total users, but Unitus has the 30-day free trial to help get members sampling it.

  3. Jim: I’m sure it’s me, not you. I’m all for banks charging for PFM — IF they’re going to stop charging for other things that don’t add value. $2 on top of a $7.95 monthly charge to maintain a checking account is steep. And if banks start levying a fee for debit card use, that’s just more insanity. I also don’t think 30 days is nearly enough time for a new PFM user to reap maximum benefits from using PFM. Can you really reap the benefits of seeing your accounts aggregated in one place in the first 30 days? Can you really cut down on interest, late, and overdraft fees THAT MUCH in a 30 day window.

    I think Flexo helps make my point: If a bank/CU customer has to pay $24/year on top of all the other fees s/he has to pay, they’ll be likely to turn elsewhere for PFM. And given the potential benefits of PFM — to both the consumer AND the FI — that would be a major wasted opportunity for the FI.

  4. Thanks for the clarification (I think it was me). Certainly, the FI would need to be careful about piling on the fees. In this case, Unitus offers an all-free checking account that includes reward points. So even with the $2/mo fee, it’s still a heck of a deal.

    And while $2/mo seems trivial, if they did get 20% of their members using it one day, that’s more than $300,000 annually. That’s worth testing the waters for.

  5. I think you are probably both right in some respects. So long as banks continue with the current model then they should charge. They should also charge for mobile banking. And of course they will lose customers to those who don’t.

    Banks used to have products (accounts) then created new access points such as online banking and ATM’s.

    The obvious holy grail was to layer on automated advice and PFM in various forms was one way. Many banks including where I was (mbanx) tried to build out financial advice online but all such projects were cancelled because there was no line of sight between the functionality, the cost of providing and revenue.

    And so it goes around. It is time to re-evaluate the entire offerring from a bank, and the bank that does that will be closer to what Ron speaks of. They will be few and far between imho.

  6. Colin: Banks’ pricing model is a mess. They can’t seem to understand the difference between a service and a channel. If banks start getting aggressive about marketing messages thru the mobile channel, can you imagine the outrage of customers who will feel like they’re paying their bank to be able to market to them? I don’t know if you remember a report that Forrester did more than 10 years ago — you might not have seen it b/c it wasn’t written by the FinSvcs team. It was written by Varda Lief, and while I can’t remember the title of the report, what I do remember is the important idea from the report — that information about products and services was becoming more “valuable” than the product or service itself. In the case of banks, this means that PFM, bill pay, alerts, etc. become more important than simply being able to write a check. But as long as banks charge outrageous fees for overdraft fees, ATM fees, statement fees, etc., then they’re going to have trouble charging for the things that add value — like PFM.

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