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PFM And The Online Banking Hierarchy

Let me see if I can say this delicately. Although I think that every tweet from @pglyman is interesting and important, one of his tweets from the other day was especially interesting to me. Pete tweeted “I’ve been seeing the term Online Financial Management (OFM) used a lot these days. I like. Going to start using it more. Goes good w/ PFM.”

My comment back to Peter was that a number of folks that I’ve talked to recently use the label OFM to differentiate what they’re doing from PFM. Pete’s comment back was:

“PFM is limiting. The future of online banking is PFM, we just won’t call it that.”

Pete’s spot on: The future of online banking is PFM.

Problem is, there are a lot of people who think the future of PFM is online banking. And that’s not a good thing.

Picture a Maslow’s hierarchy of online banking: Towards the bottom of the pyramid is basic access to accounts: getting your account balances, transferring funds. Go another level up, and perhaps we can put online bill pay on that level. Other online services might be at another level up.

But until recently, that was as high as the pyramid went.  Banks (and CUs) have done a great job over the past 15 years of making it more convenient for customers to access their accounts and to transact, first online, and now using mobile devices. (I consider these “innovations” despite what my friend Brett King might say).

But more convenient access to accounts and transaction capability doesn’t mean banks and CUs have helped their customers make better financial decisions or improve how they manage their financial lives. (Yes, I know that there is plenty of financial educational material online. And if you can show me how that material has proven to be effective, I’m all ears).

By subsuming, co-mingling, or conglomerating PFM with what we’ve come to consider online banking is undermining the promise of PFM. That is: The promise to add more value to the bank customer relationship.

We could argue for a long time over what banks’ biggest problems are. From a retail banking perspective, I’d argue that there is a disconnect between what customers pay for and the value they receive. Paying overdraft fees, ATM fees, monthly fees for writing too many checks or using the branch too many times, doesn’t produce much value in the eyes of bank customers. (Do you hear consumers clamoring for the government to regulate Apple’s outrageous pricing for iPhones and iPads?).

PFM users say that PFM has helped them better manage their financial lives. And banks and credit unions believe that deploying PFM will help them better engage their customers/members and improve consumer perceptions of them.

So why would any bank or CU want to subsume PFM into online banking? There are a lot of butt-ugly online banking sites out there, why would any bank or CU want to dumb down a PFM offering to the level of their online banking offering?

I’m not saying that there shouldn’t be a single logon to both capabilities, but banks and CUs should be treating PFM as something different, something above and beyond what is offered today.

Problem is, today’s PFM tools don’t live up to this promise. Right now, they’re too narrowly focused on budgeting and expense categorization. But the future of PFM is a lot more exciting: Peer comparisons, mobile access, point of sale advice and recommendations, rewards program integration, etc.

The people that I’ve talked to who want to use the label OFM instead of PFM say it’s because they believe Personal implies consumer, and that by using the word Online, it’s more inclusive of small businesses.

This is silly. First off, did anybody ask small business owners if they feel that the PFM term implies something that isn’t relevant to them? Didn’t think so. Second, is there any generally accepted definition of PFM in the market? No. Quibbling over the label at this point in the development of PFM/OFM doesn’t move the ball forward.

Better to use that mental energy pushing PFM up the online banking hierarchy.


Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Check out Ron's book, Smarter Bank.. According to Brett King, “Ron is famous for his snarky sense of humor, and his well-researched, well-considered takes on banking and customer behavior. If you are in banking, you should read it — you will come away smarter and better informed." New! The Kindle version is here!

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Comments

  1. let’s not snub mobile users – need MFM too :)

    As some of your earlier findings suggest – it really should be called “engagement banking”

  2. I don’t think consumers care what term the industry uses to refer to itself. You don’t hear many Mint users talking about “PFM,” “OFM,” etc.

    Does PFM revolve entirely around the online world? There is no offline component? No need or opportunities for local/desktop tools? So has the PFM players decided that one must be online 100% of the time in order to use any/all PFM features?

  3. @Jeff – not at all. Banks/Cu’s won’t reap the full benefit of PFM/OFM/MFM (whatever you want to call it) until it is fully baked into all delivery channels. You go to ATM – you should be able to check balances on all your financial products (across any institutions) with one swipe. You visit a branch or call on phone – CSR and tellers should know your your full financial profile (including what your financial goals are) so they can better serve you. The online component is just the beginning…

  4. Shawn: Agreed. But….I wouldn’t consider checking balances to reach the level of “PFM”. Instead, when you withdraw $100 at the ATM, the ATM should be able to print a message on the screen that says “ALERT: $100 withdrawal will put you $50 over your monthly budgeted cash allowance.” Or something like that.

  5. PFM/OFM is a silly old school marketing discussion. We are still in the infancy of this technology. The Financial Management (FM) part should be available to me where ever I transact, where ever I have a connection to the internet, basically every where I want it. I should know my financial condition by looking on my Android handset or my tablet or ATM, internet enabled TV, computer widget, Facebook, etc.

    Ron, you nailed it when you replied to Shawn with: “Instead, when you withdraw $100 at the ATM, the ATM should be able to print a message on the screen that says “ALERT: $100 withdrawal will put you $50 over your monthly budgeted cash allowance.” Or something like that.” – Or that message gets delivered to where ever you want it to be sent.

    @dmgerbino

  6. Sounds to me like everyone is going to like what we’re building 😉

  7. Hi Ron-
    I certainly agree with much of what you say, but the assertion that banks/CU’s should not “subsume PFM into online banking” ignores the very real installed base problem that FI’s have now vis-a-vis their OB platform. Hell, even Financeworks is “subsumed” into DI/IFS’s online banking platform, and it’s an in-house tool.

    All of us (and here I mean the PFM providers) believe PFM should subsume online banking–not the other way around–but that’s going to require a much bigger tech project (new OB platform, rip and replace, etc) than just adding on PFM via SSO. It’s a first step, but I think it’s an important one, and if Financeworks is evidence, I don’t think it can be skipped.

  8. Nothing new in this and nothing new in why it will not happen. Let me explain. The average big bank has 20 disparate systems that are jimmied together with baling twine and rubber bands. The concept of taking data across all customer accounts and making meaningful evaluations and analysis that informs the online banking PFM is a pipe dream for most banks.

    This concept has been around forever, and the advent of mobile makes it the more pressing, but why are we not seeing it?

  9. Striving for putting personal, and small business, finances on auto-pilot may very well be a necessary result of long-term trends… i.e. people with busier schedules, and financial management becoming more complex. It would be a nice complement to PFM, if at the beginning of the process of setting up your finances on auto-pilot, there was an expert advising you what to do and how to do it, and is available for periodic reviews of your PFM life. Just a thought. ~ Jeff

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