PFM Is Dead, Long Live FPM

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PFM (personal financial management) is dead. And if you want to know who killed it, look in the mirror. Because you killed it. You, the banks and credit unions that have been implementing PFM. And you, the PFM vendors who have been selling them this stuff.

I know what you’re thinking: What the hell are you smoking, Snarketing [email protected]#? You’re thinking, “We integrated PFM into our online banking platform and saw a big spike in adoption in the first 90 days!”

That’s actually how you killed it. You buried it. Buried it alive. Stuck it in the discount rack of that dying record store you call your online banking site.


It didn’t have to end this way. But you deceived yourselves into thinking PFM was something that it isn’t. The following quotes were pulled from CU Times:

“We wanted to bring a product to market that offered our members a real and complete solution to managing their personal finances.” — Credit union COO, referring to PFM

“The purpose of the new tool is to help build awareness of the credit union’s ability to help individuals plan for short- and long-term financial goals, as well as track income and expenses and promote financial literacy.” — Attributed to just the credit union

“Gaining an understanding of one’s financial picture will empower our members to make prudent financial decisions.” — Credit union CEO

I’m sure there are plenty of similar quotes from bankers, I’m just too lazy to go find them.

The problem with these statements, however, is that none of them are rooted in reality.

PFM — as implemented by most FIs today — is mostly budgeting, expense categorization, and cash flow analysis. Not only is that a far cry from being a “complete solution” for helping people manage their finances, but, drawing upon a recent survey of 1,115 consumers conducted by Aite Group, and published in a report titled Strategies For PFM Success, there are (at least) two issues that prevent the above statements from being true:

1. Few consumers are sufficiently engaged with the management of their financial lives. I identified 14 financial activities — including budgeting, expense categorization, forecasting cash flow, evaluating savings/investment performance — and asked consumers if they did these things, and if so, how frequently. I took the results and grouped respondents into one of three activity levels: Low, moderate, and high. About 30% of consumers (consistent across generations) are not at all engaged in their financial lives.

The percentage of consumers that are highly active, however, varies by generation: One-third of Gen Yers, a quarter of Gen Xers, about 15% of Boomers, and just a handful of Seniors active in the management of their financial lives. One thing, however, is consistent: The most active consumers are those most likely to use PFM tools. Bottom line: Unless consumers become more active in managing their financial lives, the PFM tools will go unused.

2. PFM tools fall short of delivering full value. One of the things I discovered analyzing the survey data was that PFM users could reap three types of benefits from the tools: Oversight — knowing where their money is and where it goes; Insight — knowing how their financial lives are performing; and Foresight — knowing what to do to improve the performance of their financial lives. Bottom line: Few PFM users have reached the pinnacle (or the middle level) of this pyramid.


PFM is stillborn. Budgeting and expense categorization, with pretty charts and graphs (and now Bubbles!) simply doesn’t have that much of an impact on consumers’ financial lives. Consumers get Oversight out of PFM, but that it isn’t enough. They need more.

I’m not one to shy away from trying to name things, so I’ve got a name for what is needed. If you’re dyslexic, you already know the answer: We need FPM. Financial Performance Management.

Consumers need tools like the bill analysis tools that Truaxis provides, the card and mortgage analysis tools that Credit Sesame has developed, the saving incentives apps that Bobber Interactive has designed, and the spend management capabilities that Banno demoed at the recent Finovate conference.

But consumers need these things to work together with their existing accounts, and existing online and mobile banking platforms. Independent, one-off tools and sites will never gain enough traction to garner a significant mass of consumers.

If FIs really want to provide their customers and members with a “complete solution to managing their personal finances,” they’re going to have to go well beyond slapping up some PFM (i.e., budgeting and expense categorization) tools on their web sites. 

It’s going to require a concerted — and probably strategic — effort to bring these capabilities together into a coherent offering.

Adding PFM as a feature to checking accounts is a dead end. 

FPM needs to become the product. It’s what people will pay for. It’s what delivers the value.

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