Bank Innovation reported on new research from Celent on the use of, and opportunities for, PFM in banking. According to the article, titled Is It Time for FIs to Give Up on PFM?:
“PFM has been around for a while, and despite advancement, adoption has plateaued at 10%, 12% of users. Clearly something is not working,” [according to] Dan Latimore, senior vice president, banking, for Celent. The receptiveness of these features by consumers has been lukewarm at best, mostly because PFM features still require the user to make the bulk of their financial decisions themselves.”
What We Have Here is a Failure to Communicate
Let’s do some math. Based on Celent’s 12% adoption rate, there are approximately 9 million PFM users in the US. How do you get to that number?
|# of US households||126,000,000|
|# of banked HHs||115,920,000|
|% banking online||65%|
|# of banked online HHs||75,348,000|
|% using PFM||12%|
|# of PFM HHs||9,041,760|
If accurate, then there are more unbanked households than those using PFM.
But hold on a second… According to Intuit, Mint has more than 20 million users. Considering that article was published in April 2016, the number could be 30 or 40 million by now. Or even a billion given Mint’s history of user reporting.
A recent Forbes article said that Acorns — an app that automates savings and invests the money — has 1.7 million users. That’s “personal financial management,” no? Shouldn’t they be counted as PFM users?
So is PFM adoption really just at 10 or 12% of users? Or is that just the adoption rate among banks and credit unions? I don’t know how anyone could tell.
PFM — or at least, PFM-like features — has become so ubiquitous and embedded into digital banking, how would we count the number of PFM users among digital banking users?
If someone looks at a chart — once or even two times — that shows a trend of their balances or savings, does that make them a PFM user?
Or do they have to use — on a regular basis — budgeting and expense categorization features in order to be counted as a PFM user? If that’s the case, then the Celent numbers are spot on.
I’m Not Dead Yet
There’s at least one observer who sees some light at the end of the tunnel. In a piece published on LinkedIn, Paul Murphy wrote:
“PFM has a real chance of reaching large-use levels. Why? Because today, fintech technology providers are able to make a great guess at assigning and categorizing bank transactions. These categories are the heart of PFM functionality and drive the reporting and budgeting promised to the end-user.”
My take: Murphy’s analysis falls into the definitional trap — that PFM is defined narrowly as budgeting and expense categorization.
It’s the Impact, Not Adoption, That Matters
I don’t care how good automated expense categorization gets. That’s not going to drive widespread PFM usage. Not enough people care about that. If you want to drive higher PFM adoption, then you’d have to get more people to care about budgeting and expense categorization — and not try to drive higher levels of digital use among those who already do it or care about it.
The bigger issue (and challenge) here is: What’s the impact of PFM (however it’s defined)?
This is pertinent from both sides of the coin: bank and consumer. A fintech vendor I recently met with commented:
“The impact of PFM is like Sasquatch. Everybody talks about it, but no one has ever seen it.”
He was talking about it from the bank’s perspective. Whether the PFM adoption rate is 10%, 12%, 82%, or 2%, the real question is: What impact has it had on the users’ rate of satisfaction, retention, and up-sell/cross-sell?
I don’t know the answer to that. All I ever seen is data that says things like “PFM users are more affluent, more engaged, more this or that,” but I’ve never seen a solid analysis that attributes bottom line results to PFM usage.
Now that won’t make me very popular with some people I know in Connecticut and Utah, but it’s the truth.
Does that mean you shouldn’t offer PFM tools and capabilities? No. What it means is that your decision to offer those capabilities needs to be part of a broader strategy to provide value to some segment of consumers, and that measuring the direct return from your investment in these tools and capabilities may be impossible to do.
In other words, PFM might be considered “infrastructure” to some strategic value proposition, where the ROI comes from what you do by leveraging PFM capabilities and data, and not from simply incorporating budgeting, categorization, and graphing tools into your digital banking platform.
And I know some folks in Connecticut and Utah who agree with me on that.