PSD2 is now looming large for banks. Coming into effect in 2018, it will allow customers to manage their finances through third party aggregators, gathering data from multiple bank accounts into one convenient location. If customers choose to use a personal financial manager (PFM) developed and maintained by someone other than their bank, that bank will be forced to allow the PFM access to the customers’ data.
We’ve already written about how, rather than just representing a threat, PSD2 is also a significant opportunity for banks. Major retail banks are well positioned to dominate the PFM market, if they choose to enter, but competition will be fierce. Every PFM will aggregate – so what are the features that will make one PFM more popular than another?
Clearly the quality of its budgeting features will be key – an area where banks’ digital offerings are currently lacking. This, and the desire to aggregate financial information, has led to the emergence premium, paid-for budgeting tools such as You Need a Budget and free services like Mint. Some of these currently rely on manual data input from users, while most use screen-scraping technology employed by Yodlee.
Screen-scraping is due to be outlawed in Europe under PSD2, but the PFMs that emerge following that regulatory change could offer significantly enhanced convenience and functionality for budgeting – particularly if they’re from banks also taking advantage of card control features, which allow users to set spending limits and controls where bank cards can be used.
An advanced PFM could allow users to set limits on how much they spend on specific categories – such as clothes, food, alcohol or bills – as well as being smart enough to consider the impact of the user’s run rate. If a user has spent £350 of their £500 monthly food budget inside a week for example, the PFM’s app could warn them to slow down (on spending, rather than eating – although that perhaps that too).
It’s an opportunity for banks to add significant value, particularly as the growth of digital wallets and the increase in digital spending reduces the tangibility of money for customers. What’s more, third party PFMs – those not created by banks – won’t be able to include controls over credit and debit cards in the way that banks can. This gives banks a lead over the potential usurpers.
PFMs for budgeting offer banks a serious method of combating the commoditisation of banking. Rather than ending up as a generic utility, a back-end to PFMs and fintech software made by third parties, banks who offer useful and sophisticated budgeting and management services will be seen as indispensable by users. It’s also a path to building more secure relationships with customers – particularly vital in the age of the aggregator – by positioning themselves as ‘partners’, helping customers to spend their money wisely.
Many people are currently rightly concerned about supplying bank login details to screen-scrapers and this has placed a limit on their growth, but beyond 2018, PFMs will advance at a rapid rate in Europe – because PSD2 will require banks to supply the account information to aggregators (with the account holders’ permission). Using third party aggregators to manage multiple bank accounts will quickly become the norm, and banks who seek to remain as the primary financial touch-point for their customers will need to be quick and consistent in innovating and updating their PFM offering.
Aggregation will be both a threat and an opportunity for banks. And with the cashless society around the corner, they’ll need to move fast.