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PFM apps are folding as banks work them into their own apps

Consolidation is underway in the crowded personal finance management, known as PFM, market.

Last week,  Level Money, the money management app owned by Capital One Financial, said it will shut down on Sept. 1. Also last week, Prosper Marketplace said it would discontinue the Prosper Daily app and urged customers to bring their PFM needs to Clarity Money. Earlier last month, SoFi said it would nix the services by Zenbanx, just six months after it acquired the online banking company, and would use its technology and personnel for its own online bank.

“When we started Level Money back in 2013, there weren’t many tools to help people manage their money,” the company wrote on its homepage Thursday. “While we’ve had successes over the years, we are encouraged by how much the financial industry has changed — there are now a plethora of tools available to help you manage your money.”

The post also said that as part of Capital One, it would continue creating “ways for people to save and manage their money,” without further detail. Capital One did not respond to requests for comment by deadline.

PFM has 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. That’s changing now as banks realize the importance of personal financial management for continued customer engagement. And they’re starting to implement PFM features into their offerings to provide more complete banking experiences. As it is today, PFM is usually a separate entity found in entirely different apps like Clarity Money, Moven or Mint.

“Industry wide, there’s a reluctance to discuss [personal financial management],” said Stephen Greer, author of the Celent report Personal Financial Experiences, which asserts that while banks and startups got stuck trying to make PFM work, the customer need for PFM tools has evolved into the need for “personal financial experiences.”

“For a lot of banks that tried it, it was poorly executed; there would be modules within online banking that users rarely even knew existed or required a lot of manual intervention. The term really hasn’t evolved that much … companies were just putting a name out there to stick a flag in the ground, trying to describe and outline PFM. Now it’s really evolving to what digital banking in general is.”

For example, one of the biggest nuisances of PFM historically has been the lack of good financial data. Customers using an app would have to hand over their online banking credentials so the third party financial app could access their banking data to be able to provide users with their financial snapshot. The data that appeared on the home screen of their online banking wasn’t always in sync with what they would see in their PFM app.

Those standalone apps have done a lot for legacy financial firms; they’ve shown them how to provide “creative and innovative ways to help customers be more financially successful,” Wells Fargo’s Ben Soccorsy, head of digital payments product management, told Tearsheet last month in a discussion about its forthcoming Control Tower product.

The Control Tower, a tool within the Wells Fargo mobile banking app that gives customers a single view of their digital financial footprint and lets them turn on or off the sharing of their bank account information, is the perfect example of a bank establishing itself as a trusted advisor to the consumer, Greer said. It uses payment transaction data to push features that make it easier for customers to control their own finances instead of pushing them a new credit card they have a good chance of being qualified for, for example.

There’s an element of trust that most people seek in a financial advisor, human or digital, whether they’re positive or cynical about legacy financial institutions. As banks start to offer these features of financial advice that startups have been offering for much longer, that aspect is becoming more prominent.

“Incumbent banks have various little advantages” — trust, a large customer base and brand recognition and stability — “and they’re extremely underestimated,” Greer said.

Meanwhile, a lot of standalone apps have trouble launching and gaining any traction.

“What they have done very well is shown the market what is possible and what good looks like,” he added. “Larger banks have really taken notice and used that as inspiration for their digital strategies.”

That first became clear with earlier deals like BBVA’s acquisition of digital bank Simple or TD Bank’s partnership with Moven, which allows the Canadian bank to use Moven’s software in its own mobile banking app to give customers a single app in which to manage their financial activity.

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Inside the creation of USAA’s Alexa skill

USAA is jumping on the voice train.

The San Antonio bank on Wednesday began a 90-day pilot of an Alexa skill for Amazon devices that lets customers check balances, review spending history and get other account insights based on their transactions. If the pilot goes well, the bank could create a new channel for customers to access their financial data and view it in ways that will help them make financial decisions.

Don’t mistake the skill for advice, though, said Darrius Jones, assistant vp at USAA Labs, a division that lets the bank’s customers participate out and provide feedback on its latest innovations.

“It’s really to paint a proper picture of what’s going on with your finances,” he said. “Having sound financial security comes out of making sound decisions, and sound decisions are based on data.”

For example: “Alexa, can I spend $100 on a new phone?”

“You typically spend an average of $200 on electronics in a month.  So far this month you’ve spent $50.  This will leave you with a balance of $2,518.51.”

This approach fits with the industry’s move toward self-service through digital channels. For years, that took the form of transactions like depositing and withdrawing paper money. But now, customers are seeking control instead of (or in addition to) advice when it comes to spending and saving.

For many customers and industry observers, the recent crop of artificial intelligence-powered digital assistants and chatbots has been anticlimactic. It’s let people see their account balances but little more than that.

“We thought there was an opportunity for us to do something different from the Q&A response mechanism that you traditionally see,” Jones said. “You’ll start to see spending advice as more of a mechanism to make a decision than to get some help. We think conversationally is the best way to deliver it.”

USAA’s skill uses technology from Clinc, which uses natural language processing, machine learning and deep neural networks to understand and respond to people. While Capital One’s own technology is keyword driven with scripted commands, Clinc’s allows USAA customers to talk in normal human language, without using keywords.

Other financial firms like TD Ameritrade, Fidelity Investments and Amex offer Alexa skills. Capital One is the only other retail bank to have launched an Alexa skill, with similar capabilities as USAA’s, as well as the ability to pay bills.

USAA, however, isn’t letting people move money via the platform for now because of security concerns.

For the Alexa skill, as with other Labs innovations, USAA customers that opt in to updates receive a direct message from the bank that prompt them to visit USAA Labs online. USAA has gotten requests for Alexa skills in its feedback, Jones said.

But it was through the PYMNTS.com/Alexa Challenge, in which it won the “Easiest to Explain to Mom” designation a year ago that really got the bank interested in the conversational channel — and led to the invitation by Amazon to develop the pilot.

“It was an interesting opportunity to see what a new channel and interface style with a conversational assistant would potentially be with USAA,” Jones said.

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Inside Capital One’s digital identity strategy

identity and indian aadhaar

In an ideal digital world, people would have digital identities and own them entirely, without any one organization — your bank, Verizon, state government, Facebook — controlling all aspects of it.

One reason effective identity solutions haven’t taken shape in the past is the space requires a lot of collaboration among different parties; so far, most efforts have been unilateral, said Matthew Thompson, Capital One’s director of digital business development.

Now Capital One is trying to change that, with a digital identity application programming interface (API) that lets websites and apps authenticate the identity of their customers against the identity information stored by their banks. The bank plans to launch out of its beta mode later this year.

For example, instead of a customer providing her name, address and birthdate when registering a Lyft account, she can enter her Capital One account credentials instead and the bank will share her verified identity information instantly and securely.

“We work hard to put our customers in control of their information and enable transparent exchange and access to it,” Thompson said. “We’re seeing regulation in places like Europe that are effectively driving industry towards [self sovereign identity] as a requirement. We want to be ahead of regulation here by doing what’s best for customers.”

Banks already act as stores of trusted information. They have an identity relationship with millions of customers and can provide a lower friction wave for them to prove who they are online. Many solutions in the market today use things that have relatively low success rates and put the friction on the user to prove who they are, like knowledge-based authentication. Answering questions like ‘Which of the following streets did you live on in 2001?’ is harder to answer than it seems for people in urban areas that move a lot.

The recently revealed identity project between IBM, authentication provider SecureKey and Canada’s major banks — Bank of Montreal, CIBC, Royal Bank of Canada, Scotiabank and TD Bank, as well as credit union network Desjardins — is another example of banks collaborating with networks outside themselves to try to fix the problem. They’re creating an app that allows people to verify their personally identifiable information for services like new bank accounts, driver’s licenses or other utilities.

“You don’t want to trust one entity with all aspects of identity, it’s good to have checks and balances in that system,” he said. “And frankly, all the components that are required aren’t core competencies to any one company providing these services. Identity is core to our business.”

In the U.S., BBVA made digital identity the theme for the ninth edition of its Open Talent fintech competition. The finalists, which were announced earlier this month, will have the chance to work with senior leaders across BBVA and make business connections. Also, USAA has invested in and adopted the technology of ID.me, which lets financial institutions remotely verify customer identities. Thompson cofounded ID.me in 2010 and left eight months ago to join Capital One.

“What’s missing in the ecosystem today is the ability to leverage trust you’ve already established with one party and extend that out beyond the one party,” Thompson said, noting he often uses “trust” and “identity” interchangeably. “Trust shouldn’t live in silos. To be effective with identity requires trust by all parties involved.”

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Tradestreaming Deep Dive: Amazon and Capital One?

Today’s episode is part of a new series we’re running. It’s called Deep Dive and as part of the show, we get an inside look from the reporters writing some of our top stories. From our New York office, reporter Tanaya Macheel joins me on the podcast to discuss the rumors that Amazon was in talks to acquire Capital One. Most of the articles that covered the story focused on why the deal didn’t make sense. Tanaya took the opposite tack with a contrarian piece on why the deal isn’t as crazy as it first sounds.

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Below are highlights, edited for clarity, from the episode.

Why would a tech firm want a bank?
Let’s start by saying that this deal is unlikely to happen. Banks were formed to manage dollars and cents. But as they’re undergoing this digital overhaul, like every industry is, they’re now managing data. All customer digital transactions and history are data which tech companies are really good at managing.

Are customers open to banking with Amazon?
I’m one of those people who is a little more wary of sharing my data with tech companies. There’s research that shows that 20 percent of people polled would buy financial and insurance products from large tech firms. Those findings aren’t that surprising given what I said before about banks moving into managing data.

Customers expect banks to keep up with the pace of innovation that technology firms set. 37 percent of people polled said they would be willing to leave their bank if it wasn’t keeping up.

Why is Amazon interested in Capital One?
We’ve seen payment plays from the other big tech firms, but Amazon is the only big tech firm that needs payments as part of its core business. Most of Capital One’s business is in credit and lending. While traditional banks focus on borrowers with high FICO scores, Capital One has opened up lending to almost anyone with an unsecured loan.

Amazon also offers a branded credit card that is issued by Chase. Capital One is also a card issuer and if Amazon could bring that under its own umbrella, it would earn more money.

Lastly, Capital One knows how to get new customers by marketing the right product to the right person at the right time. Customer acquisition is one of the biggest challenges for credit cards. It’s so expensive and can cost credit card issuers up to $800 to land a new account. With the data each company has, they can provide potential borrowers with better targeted offers and reduce acquisition costs.

What does a potential Amazon-Capital One acquisition look like for customers?
When you enter the checkout process now, you get all these payment offers. You can use credit cards and PayPal. You can also use PayPal Credit, which used to be called BillMeLater. There’s also this great company called Affirm, founded by PayPal’s Max Levchin. It’s a digital installment startup that directs you to apply for a no-interest or low-interest credit option. Because this is kind of core to Capital One’s business, that’s how I can see it manifesting.

What could get in the way of the deal?
Capital One has 800 branches and may need to sell off some of the consumer business to make the deal more attractive. Vantiv does Capital One’s merchant acquisition and Capital One would need to deal with that before doing a deal with Amazon. There’s also some lingering regulatory things that need to get cleaned up.

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Why Amazon buying Capital One isn’t such a crazy idea

Last week a rumor circulated that Amazon might be looking to buy Capital One.

It’s only a rumor, and it’s probably very unlikely such a deal would go through, if only because the regulatory scrutiny that banks endure would put off any retailer in minutes. But who knows. The Trump administration is just decorated with Wall Street execs that can’t wait to deregulate banks.

The idea that a Silicon Valley giant could buy a bank is not new. Twenty percent of people would happily bank with them, according to a Fujitsu survey of 7,000 people. About 37 percent of respondents indicated they would leave their bank if it wasn’t up-to-date with technology and innovation that could improve customer experience. After all, banks exist to manage dollars and cents, but in a digital world, people would rather trust tech companies with the exchange of data that comes with financial transactions.

Among the obvious tech contenders — Google, Facebook and Amazon — Amazon is the only one who needs payments as part of its core business. If Amazon wants a bank badly enough and the price is right, Capital One would be a great fit. Amazon has a large marketplace that includes many retailers. Most of Capital One’s business is in credit and lending. It lends to a wide spectrum of people with different needs when most major banks only want to look at potential borrowers with FICO scores above 700. The prospect of a deal like this really happening might not be so crazy. (Amazon and Capital One declined to comment for this story.)

That’s one of three aspects that would be of greatest interest to Amazon, according to Mike Moeser, director of payments at Javelin Strategy & Research.

“When you get down to people with spotty or thin credit, a lot of banks will back off from that, whereas Capital One has been doing it for years,” he said. “They’re able to look at someone and determine if you have a thin file but you’re a young person or new to the country. Sometimes they have awesome credit, which is easy. But that full spectrum credit lending capability is something they bring to the table.”

Secondly, Capital One’s knows how to get new customers and how to market the right product in order to do it. One of the biggest problems with credit cards is the high cost of customer acquisitions, said David True, a partner at Paygility Advisors. Each company would benefit from the other’s customer data to create smarter marketing and selling strategies.

“If you had some of the information Amazon has — what motivates people, what do people buy — you could provide target offers at a lower cost that would help the card business a lot,” True said. “That would be very attractive because that’s the core of Capital One’s business.”

Finally, Amazon currently has a branded credit card issued by Chase. Since Capital One also issues branded cards, Amazon could earn more money on fees and interest by bringing the bank into the company.

If the two came together, Capital One’s credit and lending expertise would probably manifest as an installment lending option at checkout, Moeser suggested.

“There’s a whole host of little guys in that digital installment lending business,” he said. “But no one with real clout, real money. I think that’s where Amazon’s purchase of Capital One could really come to force.”

For example, when online shoppers get to the checkout point, they might see a popup or button from PayPal Credit, formerly named Bill Me Later, or Affirm, that advertises some sort of no-interest or low-interest credit option instead of entering card details or using stored card information.

That’s a situation that should scare rival retailer Walmart, Moeser said, which has been purchasing companies it probably won’t capitalize on as much as Amazon would on Capital One. Walmart has been on a buying spree to keep up with Amazon. In August, it bought Jet.com for $3.3 billion; in December it closed its $70 million acquisition of online retailer ShoeBuy; and last week it completed a $51 million deal to purchase outdoors retailer Moosejaw.

“If Amazon were to underwrite that using Capital One’s acquisition analytics, their full spectrum lending and issuer economics it would be a killer app that would really have Walmart quaking in its boots,” he said.

Amazon and Capital One already have a relationship. Last year, they teamed up to put the Capital One skill on the Amazon Echo, making the bank the first to integrate with a voice-controlled virtual assistant. By November, Capital One had migrated its core business and customer applications to Amazon’s cloud infrastructure provider, Amazon Web Services, signaling the bank’s commitment to delivering improved and more innovative customer digital experiences.

But other factors need to come together, too. Capital One has some 800 branches and may be a more attractive target if it sold off that consumer business, Moeser said. It has a long-term agreement with payments processor Vantiv, which does the bank’s merchant acquiring, so it would have to take care of that agreement before a deal with Amazon closes. And Capital One is in murky water with regulators over compliance deficiencies they found in the bank’s program that prevents money laundering, which halted their bid for outdoor-gear retailer Cabela’s when seeking regulatory approval.

Why Capital One, or any bank, would allow a deal of this kind to take place is impossible to parse right now, said Simon Taylor, a cofounder of fintech consultancy 11FS who previously worked at Barclays and TSYS.

“Do the bank staff and sharesholders get a good deal? How much does Capital One get to benefit from Amazon’s global muscle and footprint? If 20 percent of Amazon’s global customer base had a Capital One card, would that be wildly profitable? There are simply too many unknowns,” he said.

And where is Richard Fairbank on all this? The credit card giant’s 67-year-old founder and CEO keeps a low profile, as much as he can anyway considering how high-profile he really is in his position. He’s a famously nontraditional, contrarian and innovative leader who said on an earnings call a couple years ago that the bank should “think more like technology companies and maybe a little less like banks.”

It’s unlikely we’ll hear from him anytime soon, but he seems like the type of leader that will mesh well with the likes of Amazon.

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7 examples showing the power of banking APIs

Banking as a platform has been hailed as the coming mega-trend that will change the way we interact with financial services. In order to keep up with changing customer demands, banks open up to business partners and the larger community through APIs that can connect bank data and services to other applications.

The concept of partnerships itself is not new. However, the use of APIs moves the control of the user experience from banks to their partners or to a community of developers, thus changing the relationship from vendor to partner. For a slow and closed industry as banking, this is a huge change.

Banking APIs include account authentication and information, analytics, loyalty programs, and payment processing. In Europe and the U.K., regulators are forcing banks to share customer data and similar changes are probably coming to the US.

But aside from the hype, what API-based banking products and services are gaining traction in the market? 

Paypal / Siri integration: Today, Paypal announced its users can now send and request money via a voice command with Siri. Simply say, “Hey Siri, send Bill $50 using PayPal.” Paypal processed $41 billion in peer-to-peer transactions across PayPal, Venmo and Xoom last year and is expecting 17 million P2P transactions in the month of December alone. Giving customers an easier way to send money to each other is a no-brainer.

Telefónica Deutschland’s O2 Banking: This summer, mobile telecommunication company, Telefonica Deutschland launched a mobile only bank account, built on German Bank Fidor’s platform. O2 Banking offers transactions via mobile phone number, small instant loans, and better mobile data plans. This is a good example how a third party can create a new banking experience on top of a platform created by an established bank.

Robinhood’s connection to a user’s bank account: Users who invest through investment app Robinhood first need to connect their bank accounts. Using Plaid’s banking APIs, Robinhood makes the onboarding process pretty easy and smooth. Plaid’s APIs help connect a variety of other applications, including TransferWise, Acorns, and Stripe.

Wave integrates customer financial info: Invoice and accounting software Wave uses banking APIs to connect to a user’s bank account, empowering its clients with full control of their business finances in one place. Not just an invoicing service with limited visibility to its business clients’ true financial health, the company leverages as much data from other sources as it can. The company also connects with online lender OnDeck to offer loans through its platform.

Facebook Messenger payments: Users of Facebook Messenger can transfer money to their friends without leaving the service. The company is working with major players in the industry including Stripe, PayPal, Braintree, Visa, MasterCard and American Express. Facebook is building Messenger as a bot platform that will allow users to access many third party applications.

Banking chatbots: A handful of banks have recently launched chatbots that can converse — to a certain degree of complexity — with customers using natural language. These AI driven pieces of software have access to the bank databases, account information and can help customers solve many common problems themselves, leaving only the more difficult customer service issues to a real human agent. Such examples include Bank of America’s recently launched Erica and Mastercard’s Mastercard KAI. Mastercard’s chatbot will work through Facebook Messenger. The credit card company plans to expand to other platforms later.

Capital One and Amazon Echo: Capital One took conversational interface, the fancy name for chatbots, to the next level with an integration on Amazon’s voice controlled device, Echo. Though not significantly different than other text-based chatbots, the all encompassing feeling of such an audio interface makes it unique.

APIs give rise to an otherwise impossible number of financial user experiences. Banks just do not have the time or resources to create them. Capital One would not have created Echo on its own, but once the product is there, the bank capitalized on it to reach customers in new ways.

As banks open up their customer data and third parties leverage that information to create better value for the end customer, banking will become omnipresent — there when we need it, in the way we need it.

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Inside Capital One’s new retirement product for SMBs, Spark 401k

capital one 401k, spark 401k

Small business owners have some deep-seated fears when it comes to implementing a 401(k) plans for their employees. These preconceptions translate into problematic retirement savings statistics for SMB employees. Only 45 percent of companies with fewer than 100 employees had 401(k)s in March 2016.

“Misperceptions are huge,” said Stuart Robertson, president of Capital One Advisors 401(k) services, Capital One’s SEC registered investment advisor. “Small business owners think ‘I don’t have enough employees,’ or ‘I can’t match employee contributions.’” According to Robertson, these core beliefs of small business owners regarding 401(k)s haven’t changed in the nine years since Capital One began researching that group.

What has changed over the past decade, however, is financial technology, and it’s shaking up the slumbering SMB 401(k) industry. Capital One’s research shows what all other finance research is showing – namely, that mobile and app use is on the rise. The company rolled out Spark 401k, the evolved version of its online product for SMBs, ShareBuilder 401k, in August 2016.

“We knew that ShareBuilder 401k was not a website that would be mobile-responsive for some time,” explained Robertson. “We knew we needed to be there.”

Being “there” firstly meant more aggressively targeting SMB owners online. Capital One uses a mix of SEO and social to market Spark 401k, and also leverages its other Spark products, which are used by millions of small business owners, to drive awareness to Spark’s 401k offering. Connecting the 401(k) experience with the business owner’s bigger financial picture is yet another way that fintech can help onboard existing SMB customers. “The SMB owner wants a holistic, easy way to manage all of their money concerns,” said Robertson.

Another apprehension small business owners have that’s being allayed by fintech is cost. “Technology has made 401(k)s a more viable option for small businesses,” said Roger Lee, CEO and co-founder of Captain401, an automated 401(k) platform for startups and small businesses. “Any business owner can now offer retirement benefits to their employees, even if they don’t have a big budget or an HR department to handle the ongoing administrative work.”

401(k) cost-effectiveness, however, isn’t just a tech product that’s cleaning up inefficient processes or unneeded personnel. It’s also a result of the type of investment model the 401(k) plan offers. That’s why Spark 401k went with all-ETF funds. With simplicity in mind, the product offers just five model investment portfolios for owners to choose from.

Fintech is also making its mark on emerging regulations. The upcoming DOL fiduciary rule will have a major impact on how companies of all sizes interact with their financial advisors, and companies founded with this ruling in mind could have an edge over more traditional 401(k) providers.

“The good news for SMBs is that [some] fintech players … have been built from the ground up to provide the level of fiduciary coverage that the DOL is mandating,” said David Ramirez, chief information officer at ForUsAll, an online 401(k) platform for SMBs. “Contrast this with traditional 401(k) providers, who seem to be struggling to put their end clients’ needs first.”

It’s not only upstarts, however, that are going for a customer-centric approach. Spark 401k has financial advisors do the heavy lifting for business owners by analyzing their investments regularly. Putting humans on the case is in keeping with the company’s (unofficial) motto of “digital first, with a great human touch”.

Capital One found that, no matter how simple or intuitive its technology is, SMB owners still want to speak to a human before they buy. “The ways in which people interact with and manage their money is constantly evolving,” said Robertson, “and in upcoming years, the bank will have to assess and reassess where that reassuring human touch will be needed.”