The Customer Effect

How personal finance apps will change in 2018

  • As banks make PFM part of their service offerings, the pressure is on for standalone PFMs to stay profitable
  • Working with incumbents in some capacity may be inevitable
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How personal finance apps will change in 2018

Independent personal finance platforms may be about to hit a wall.

Throughout 2017 it seemed like the need for standalone personal financial management apps was fading. The parent companies of Level Money, Prosper Daily and Zenbanx all folded the apps. At the same time, banks are building automated savings, budgeting and management capabilities into their existing mobile financial experiences, or buying personal finance companies to incorporate those features. Chase launched a sub-branded banking app with money management capabilities built in, Wells Fargo made a similar move shortly after.

But these young companies are still being funded. For example, MoneyLion closed a $42 million in Series B financing Thursday. It’s clear customers like personal finance features, just not enough to pay for them; and banks realize that well enough to invest in that capability themselves. That means standalone personal finance apps can partner with banks, sell to them or add more services to generate revenue.

“PFM providers are going to have to think about their strategies in a world where banks are releasing standalone apps that compete directly with them,” said Celent analyst Stephen Greer.

Since these tools rely on customer data to develop budgeting and savings tools for consumers, their future may depend on how closely they want to cooperate with financial incumbents. MoneyLion refers customers to products offered by partner companies through targeted loan offers, according to CEO Diwakar Choubey.

“We sit on a trove of [customer] data and that allows us to recommend loans and financial products for the consumer,” he said.

MoneyLion has never been about personal finance alone, said Chris Sugden, managing partner of Edison Partners, which led the funding round. It also offers investing services and product recommendations to generate revenue.

The challenge for startups is that customers typically don’t attach enough value to personal finance tools to want to pay fees, said Jim Del Favero, Personal Capital’s chief product officer. It’s never been a prominent feature of consumer bank accounts. For most of banks’ existence people had to balance their own checkbooks based on debits and credits. One of the biggest nuisances historically has been the lack of good financial data. By adding more features, these startups can add more data aggregating opportunities.

Personal Capital also sees it as an add-on to a core business offering, like investment management, that generates additional revenue.

“Personal finance is a should do and not a must do,” Del Favero said. “People aren’t generally willing to pay for it — where you see success is when a business is using these tools in conjunction with a more traditional business model where there’s a main service that you’re selling — we provide portfolio management services.”

The value proposition of personal finance depends on having streams of customer data held by big banks and cooperation with them is inevitable. In North America that takes the form of one-on-one data sharing agreements, for now. In Europe, open banking regulations will soon require banks to share data with third-party PFMs, giving them an opportunity to work with banks more easily.

“PFM apps are dependent on aggregated data, largely from financial institutions,” said Greer. They can come up with great algorithms and great offers and new ways to underwrite customers, but it comes back to bank data.”

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