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.

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