Most bank and credit union products and services are “one-player games.” That is, they’re designed from the perspective of one person’s needs. Yet for many consumers personal finance has become a collaborative matter in their lives. Sure, joint accounts have been around forever, but that is a legal status, not an approach that can help people improve the management of finances when they involve other people.
Fintechs, on the other hand, have looked beyond the legal status of account ownership, overlaying accounts with transaction, monitoring, control and communications/alerts capabilities that address many of the practical concerns that arise when one’s finances involve spouses, partners, parents, friends, roommates, children and temporary connections for special situations like shared vacation homes.
Researchers at Forrester made these points in a report and during a webinar. The firm has been examining the idea of “shared finance” over several years and has framed a definition for the concept: “Any situation in which a person acts as an observer of, partner in, or proxy for another person’s finances.”
Get Past the Label:
Consumers don’t think in terms of “shared finances,” but they do know what they would like to be able to do with shared accounts and financial relationships that their current providers don’t make possible or practical.
“By and large fintechs and other disruptors are well ahead of established incumbent players in this space,” says Peter Wannemacher, Principal Analyst. While a handful of large banks around the world have crafted collaborative financial products, “most of the experimentation and innovation and a lot of the recent traction we’re seeing in the market is coming from the disruptors.” By contrast, he adds, financial institutions generally bring 20th century answers to 21st century financial challenges.
Tech Advancements Breed New Challenges:
The days when spouses might have both hit the ATM to draw out the same $100, triggering an overdraft, seem quaint compared to the bigger screw-ups today’s digital technology can produce when there’s no coordination.
However, the essentials remain the same and this is good news for traditional institutions that wish to become more relevant to the lives of busy consumers.
“Innovation in shared finance is rarely about brand-new functionality,” Wannemacher explains. “Instead, it’s almost always about the audience, the value proposition and the application of existing features and capabilities. Experimenting and ultimately succeeding in shared finance doesn’t require building out brand new technologies from scratch.”
Much of the challenge involves taking existing technologies and financial capabilities and recombining them. For example, a feature resembling texting that some apps use to allow joint management of an account can help avoid spending that violates “house rules” or an understanding of what money is earmarked for.
“One of the biggest problems people have when it comes to shared finance relationships is the ability to communicate,” says Wannemacher.
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Four Key Financial Relationships Where Fintechs Are Beating Banks
In some ways the ongoing Covid crisis brought on more need for collaborative banking, notably because there has been an increase in multigenerational households as strapped parents have moved in with kids, kids have moved back home and so on. However, the needs were growing before Covid came along.
“Shared finance needs tend to be shaped by people’s life stages and relationships,” states the Forrester report, “Design Shared Finance Products To Drive Growth.” Some of these relationships are deeper and often longer-lasting, while others are more transitory.
Four financial areas that Wannemacher and Nicole Murgia, Researcher, covered during the webinar and in the report:
Centralized “family ledgers” for children and young adults. Two forces drive this need — the desire to give structure to, and monitor, youthful spending, and the wish to give kids some supervised financial education. The financial choices they will be confronted with as they become adults far surpasses even what their parents faced.
Among the fintech apps in this area are GoHenry, Greenlight, and Step. One feature of GoHenry that appeals to Murgia is the ability to set general savings goals, in addition to savings targeted for acquisition of specific bigger ticket items like videogame consoles or a new mobile phone.
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Money management for couples in various relationships. “Different relationship dynamics among Millennial and Gen Z couples — such as the prevalence of two-income households, premarital cohabitation, or deciding not to get married at all — have led to financial relationships that are more complex than they were when most banking products were originally built.”
Key apps for these situations are budgeting, tracking spending and setting financial goals. Among the fintech providing these are Honeydue, YNAB (You Need a Budget) and Zeta.
Part of what appeals to people about such apps in not just the functionality, but also the in-the-moment financial training and explanation, the sort of “banker in my pocket” moments.
Wannemacher finds traditional financial institutions, with a few exceptions, poor at producing content that’s helpful, timely and in sufficient quantity. He holds up Zeta as an example to emulate. Among other measures the app offers a digital financial magazine and short money quizzes. A recent article in the magazine actually addressed how to open a joint bank account. A podcast in the magazine called Money Date features a couple interviewing other couples about how they manage finances together.
Managing finances for the elderly. This is an especially tricky area. Parents and other older relatives may not be able to keep up with their affairs any longer, and can be duped by dishonest caregivers and others. On the other hand, many still wish to participate in their financial affairs.
While there are legal elements that banks and credit unions are well familiar with, such as powers of attorney or joint accounts with signing rights, there are fintech tools that can address more immediate situations. A key aspect of these can be alerts for family members so the elderly aren’t cheated.
Among the fintech apps in this area are EverSafe, Kalgera and SilverBills.
There aren’t as many choices in this niche. “We don’t think that is because there’s a lack of business opportunity,” says Wannemacher, “but because, frankly, there’s a lack of imagination and probably some skewed thinking around how to best support these use cases.”
Temporary systems for tracking and settling pooled spending. As fewer people use cash, splitting restaurant bills and other expenditures has grown a bit more complicated, leading to the advent of services like Venmo and Zelle. Similarly, there are needs for temporary financial “shared spaces” for matters like passing the virtual hat for big gift or a group vacation.
Among the fintech apps in this area are Settle Up, DivvyUp and Splitwise.
A caveat of our own for financial institutions, as embedded finance becomes a bigger factor: Competition in this space could expand beyond the usual fintechs. Take VRBO, the vacation rental by owner website. Their site currently says that users sharing a vacation property can’t split deposits and payments through the site. In today’s climate, that seems an easy fix for a banking as a service provider to bring to the site.
Consumers Adapt on the Fly:
While various apps are designed for this or that collaborative financial need, clever consumers sometimes use them in their own ways. This in turn drives product improvement by fintechs.
Considerations for Banking Players for Trying Shared Finance
A key point of advice from Forrester for banks and credit unions that want to capitalize on shared finance needs is to build solutions from capabilities they already have.
Beyond this, Wannemacher suggests that institutions think narrowly at first. An app doesn’t have to address every single permutation and combination that can confront a consumer, at least not out of the box. Upgrades can be made as the institution becomes aware of new needs. (A narrow beginning makes it easier to trash the idea and try again, too.)
Pricing can also evolve, along with features. Wannemacher says that many shared finance apps use “freemium” pricing models. There is a basic level of service at no charge and at least one superior level that takes some kind of fee to access.
Forrester also notes that an institution doesn’t need to do it all. As an example the firm cites the Chase First Banking account for kids. Even though it is a megabank, Chase found that it was worthwhile to bring in Greenlight to develop the account.
“It’s kind of an ‘Intel Inside’ approach, from a branding perspective,” says Wannemacher. While this helped Chase create the account, he added, it was important for Greenlight because it helped clarify “How they can fit into other people’s ecosystems.”
One last point of advice from the analyst: Don’t ignore two key advantages that you have as a traditional financial institution.
First, there is a strong level of trust in individual banking institutions. That can be built on in sensitive areas like people’s kids, their own finances, and those of their parents.
Second, people still tend to stick to traditional institutions and graduate to successive levels of relationship as their lives move forward. This gives institutions a leg up for attracting people to shared finance offerings that can last for years.