The second day of Finovate Spring was dominated by organisations focusing on innovative ways to address what I believe is one of the most challenging issues in society today. How do we help consumers take more control of their day to day budgeting and expenditure? This is essential if we are to restore the savings ratio.
The free availability of credit means the vast majority of consumers live pay cheque to pay cheque and struggle to control income, expenditure and debt.
If consumers are not in control of their income and expenditure they cannot be confident that they will be able to maintain regular savings, around which so much of our industry is built. This as particularly important for those who will be auto enrolled as the normally affordability criteria for investment recommendations have been ignored by this process.
A range of organisations presented solutions that can help consumers more effectively manage their day to day finances and help them learn new positive savings behaviour. OnBudget provides a personal financial management platform combined with mobile services and a prepaid credit card. The service is targeted at consumers who use prepaid cards although the company recognizes that 59 per cent of users of pre-paid credit cards are customers of mainstream banks.
Such cards are increasingly used by people trying to take control of their spending which is now the number one reason consumers use prepaid cards. Despite bank customers accounting for so much of the pre-pay market apparently banks only have a 9 per cent share of that market. This suggests to me that there is a real opportunity for non-banking institutions to support their customers with services like OnBudget.
Users can charge their cards with cash from their normal bank accounts and spend as normal for the first 30 days. After this the system will create a budget for them based on their normal spending patterns. Users can then modify this to suit their requirements. This avoids the need to use external aggregation feeds to create the budget.
As money is spent it is categorized and allocated to the appropriate budget with warnings being given if the user is getting near a low balance. An increasing number of services communicate to the customer their safe to spend limit. This is essentially the amount in their account less the amount of regular spending to which they are committed.
I have seen several variations of “safe to spend” when studying a wide range of Personal Financial Management tools. OnBudget uses a relatively simple definition of this and provides users with red, amber, green warnings on the extent to which they are meeting their budget. Delivered in the right way PFM tools can bring enormous consumer benefit. In the US one third of bank customers are using banking apps with average users accessing such services 28 times a month.
Our wider research in this area suggests UK financial institutions are missing major opportunities by not making full use of such services which when used correctly can enable consumers to take far better control of their finances.
Many similar features were exhibited by Qapital when showing its financial management service which will launch in the US and Sweden later this year’s. Qapital’s presentation was impressively honest in recognising that saving money is boring, so in order to engage customers it is important to help them to focus on saving for specific goals in life, things that can be achieved in a few months or a couple of years to stimulate positive behaviour.
SaveUp showed further variation on this theme with their gamified solution which they tell me was actually inspired by our own premium bonds concept. The company says it aims to make saving as attractive as playing Candy Crush saga or Farmville. Every time users exhibit good behaviour such as paying down or saving they become eligible to be entered into a draw for up to $2,000,000. Additional prizes and incentives are funded by brands and sponsors so at zero costs to organisations deploying the system.
No summary would be complete without making reference to Personal Capital the digital wealth management business founded by former Intuit and PayPal CEO Bill Harris. I’ve been watching this business with considerable interest for a couple of years now and I think it provides a fascinating insight into how the optimal blend of technology and human advice can be achieved.
The proposition includes an excellent piece of personal financial planning software which can be used free of charge by consumers; this is supported by 30 qualified financial planners and a wider support team. Having pulled together detailed information about the client’s personal circumstances and investments using the aggregation capability of the software the adviser is able to quickly and effectively create a highly personalised report and recommendations.
After delivering the report to the client they are then able to review it in an online conference where the adviser can walk the client through the document whilst at the same time being able to see a further level of detail.
Personal Capital is achieving a 35 per cent conversion rate in migrating customers from the free software to paying investment clients. At the same time the back office automation which they have delivered in recent weeks has enabled their advisers to increase the previous average of 10 new clients per month to between 14 – 15 with average new investment balances of $300,000. The most successful advisers are achieving between 20 – 30 new clients a month. Personal Capital tells me this compares with a typical RIA based adviser who might acquire two new clients a month or a wirehouse representative who might secure 10 new clients a month but at a far lower account value, typically around $50,000.
To me this is great evidence of what can be achieved by the optimal fusion between technology and advice. I believe this provides some valuable lessons for what could be achieved in the UK.
Amongst other organisations who deserved special mention on the second day are Fiserv who gave a demonstration of the practical use of wearable devices such as Google Glass and the Samsung Smart watch showing how consumers will actually be able to check their bank balances instantly online using the wearable devices and also pay for items simply by looking at a QR code and validating the payment using Glass. All very cool stuff showing how natural and easy these tools will be to use.
On the same theme Privat Bank from the Ukraine showed its “topless” ATM which can process cash withdrawals from either a smartphone or Google Glass.
VSP, which is working with Google to deliver prescription versions of Glass and adapt the technology for the insurance industry, will be presenting as part of a special session I am organising with Platforum for its Top Gear event in June. This will look at leading edge technology and how it can be used to leverage smarter advice processes.
FinBuddy also demonstrated a yet to be a launched investment app designed with a very user friendly interface to help end consumers better understand the risk they have within a portfolio.
Essentially it will provide the level of data a professional adviser would usually get from someone like Morningstar and guides them towards a more balanced portfolio. It is still at the prefunding stage and the commercial model is as yet undefined. This provides an interesting insight into how the level of information consumers would normally get from a professional adviser will increasingly be available for free conveniently on mobile apps. This reinforces the need for advisers to constantly evolve how they are adding value.
Over the two days the event provided an excellent insight into a wide range of innovative new solutions which are likely to have a considerable impact on the future of personal finance.
Ian McKenna is director of the Finance & Technology Research Centre